BT : US mortgage rates hit 4.44% this week

Business Times - 14 Aug 2010

REAL ESTATE
US mortgage rates hit 4.44% this week

Increasing pessimism over weak economic recovery pulls down rates to lowest level in decades

(Washington)

GROWING pessimism over the weak economic recovery pushed US mortgage rates to the lowest level in decades for the seventh time in eight weeks.

The average rate on a 30-year fixed mortgage hit 4.44 per cent this week, mortgage buyer Freddie Mac said on Thursday. And some brokers say homeowners looking to refinance have even managed to do so for as low as 4 per cent.

Still, cheap rates have done little to boost the struggling housing market. Instead, they are highlighting investors' fears that the rebound is stalling and the country could be slipping back into a recession.

Investors are shifting their money away from stocks and into safer Treasury bonds. That is sending Treasury yields lower.

Mortgage rates track those yields. And the Federal Reserve is pushing those yields down even further. The central bank said on Tuesday it would buy Treasurys to help aid the recovery, using the proceeds from debt and mortgage-backed securities it bought from Fannie Mae and Freddie Mac.

That move alone is unlikely to push average rates down to 4 per cent, said Bob Walters, chief economist at Quicken Loans. But average rates that low are still a possibility if the economic outlook worsens even further.

'The silver lining to a bad economy is that interest rates fall,' Mr Walters said. 'If you can lower your debt burden by refinancing, that's great.'

Up to now, low rates have failed to spark a struggling housing market. Slow job growth, a 9.5 per cent unemployment rate and tight credit standards have kept people from buying homes. Applications to refinance have grown but remain well short of a massive boom.

Overall home loan applications rose only 0.6 per cent last week from a week earlier, the Mortgage Bankers Association said on Wednesday.

For those homeowners with solid finances, the opportunity to refinance below 4 per cent is persuading some to consider 15-year fixed loans. Those average rates dropped to 3.92 per cent, down from 3.95 per cent last week and the lowest in decades.

More homeowners are choosing that option because it allows them to save money in the long run, though it costs more in monthly payments. Freddie Mac says nearly a third of borrowers refinancing 30-year loans in the April-to-June picked loans with 15-year or 20-year terms.

Still, savvy consumers can already find 30-year fixed rates at or near 4 per cent if they are willing to pay a little more upfront.

Chik Quintans, assistant sales manager with Atlas Mortgage in Seattle, said he was able to get two clients into mortgages with a 4 per cent interest rate and a fee of one per cent of the total mortgage amount on Wednesday. But rates have inched up since then.

'Every day's different,' Mr Quintans said. 'Sometimes people have to ruminate, and then the opportunity's gone.'

Refinancing could pick up significantly if rates fall further. An average rate below 4.375 per cent could be enough of a drop so that many people who refinanced last year could shave a half of a percentage point of their mortgage rates, said Scott Buchta, chief mortgage strategist with Braver Stern Securities.

Lenders could find themselves in a bind if traffic picks up, Mr Buchta said. Many have laid off thousands of workers over the past three years and don't have enough staff to handle a crush of new applications.

Mortgage rates often fluctuate significantly, even within a given day. To calculate the national average, Freddie Mac collects mortgage rates on Monday through Wednesday of each week from about 125 banks, thrifts and credit unions around the country in a voluntary survey.

Rate quotes from parts of the country with more lending activity - such as the West and Northeast - are given more weight in creating the average.

Rates on five-year adjustable-rate mortgages averaged 3.56 per cent, down from 3.63 per cent a week earlier. Rates on one-year adjustable-rate mortgages fell to an average of 3.53 per cent from 3.55 per cent.

The rates do not include add-on fees known as points. One point is equal to one per cent of the total loan amount. The nationwide fee for loans in Freddie Mac's survey averaged 0.7 a point for all loans except for 15-year mortgages, which averaged 0.6 of a point. -- AP

Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.