Low rates fueling record applications
By SAM GARCIA
10/4/2002

Low mortgage rates have brought borrowers back to the closing table at a record pace. While it is the unknown that will drive interest rates during the upcoming months, rates don't appear to be headed up.

Borrowers looking to lock in some of the lowest mortgage rates in four decades completed a record number of loan applications last week. According to the Mortgage Bankers Association of America, (MBA), refinance applications jumped 11.61% from the prior week to their highest level ever. Refinances made up about 77% of all applications started.

Purchase applications, on the other hand, were barely changed -- edging down less than one percent.

Even though mortgage rates edged up, they remain close to their lowest level during many Americans' lifetimes. Freddie Mac reported that the average 30-year fixed rate mortgage crept up two basis points (BPS) -- or 0.02% -- from the prior week's record low to 6.01%.

"Lackluster economic reports failed to sway market expectations regarding the health of the economy over the remainder of the year," said Freddie's chief economist Frank Nothaft. "As a result, mortgage rates were little changed this week."

Bankrate.com's financial analyst Greg McBride said, "Weak economic data has been countered by Fannie Mae reducing its interest rate exposure and temporarily defused tensions surrounding the Iraq situation."

The average 15-year fixed rate mortgage was down one BPS to 5.40% -- it's lowest point since Freddie began tracking it in 1991. The drop in the 15-year caused the spread between the 15-year and the 30-year to widen to 61 BPS from 58 BPS last week. The spread reached 62 BPS last August -- its widest point since MortgageDaily.com began tracking rates.

Freddie said the average 1-year adjustable rate mortgage (ARM) jumped seven BPS to 4.29%. MBA reported that ARM applications represented 12.5% of total apps.

More than half of the mortgage bankers, mortgage brokers and other industry experts surveyed by Bankrate.com expect no change in rates during the next five weeks, while about a third see rates falling further.

"Current forecasts call for slowing growth in the fourth quarter, leading to talk of another rate cut by the Federal Reserve in an effort to stimulate the economy," Freddie's Nothaft said.

Bankrate.com's McBride said disappointing corporate earnings could drive investors back to Treasuries in coming weeks.

The 10-year Treasury-note closed up 5/32 today, to yield 3.66%, according to Lioninc.com. Last week, the midday yield was reported at 3.72%.

Article © MortgageDaily.com All Rights Reserved