Rates & apps linger near record levels
By SAM GARCIA
8/30/2002

Mortgage rates fell back near their record low levels on the heals of a weaker refinance boom. The fifteen year fixed rate continues to be an attractive program. Rates are expected to hover at their current levels.

In its weekly survey of 125 lenders, Freddie Mac reported that the average 30-year fixed rate mortgage fell 0.05% -- or five basis points (BPS) -- from last week to 6.22 percent. The 30-year is currently at its lowest point during the past 32 years.

Freddie said the average 15-year fell seven BPS to 5.64%. The 15-year is a whopping 58 BPS better than the 30-year, making it an attractive alternative to the 30-year.

Reflecting last week's brief rate hiccup, mortgage applications eased from their near record levels. The Mortgage Bankers Association of America (MBA) reported in its survey of mortgage bankers, commercial banks and thrifts that loan applications fell 4.2% from last week's record level. Purchase applications were down more than seven percent, while refinance applications were down about 3%. Refinance applications -- which made up 72.1% of total applications -- are within four percent of their all-time high levels established last November.

"Activity continues at very high levels as interest rates remain at record lows," said MBA's chief economist Doug Duncan. "A slight decline on a week-to-week basis is not surprising because consumer behavior changes daily."

MBA said adjustable rate mortgage (ARM) applications represented 13.8% of overall applications, up slightly from last week but down from 18.8% just a few weeks ago. While the ARM remains relatively low -- Freddie reported the average one-year at 4.34% -- consumers find it hard to justify the risk of an ARM with fixed rates currently so attractive (the ARM is just 1.88% better than the 30-year fixed rate this week).

The majority of mortgage bankers, mortgage brokers and other industry experts surveyed by Bankrate.com expect no change in rates over the next five weeks.

"Mortgage rates are expected to remain low until the economy picks up more steam," said Frank Nothaft, Freddie's chief economist. Nothaft noted that most forecasters now expect 2002 to possibly be another record year for loan originations if refinancings continue to hold up through yearend.

Near midday, the 10-year Treasury-note was trading up 3/32 to yield 4.13%, according to Lioninc.com. Last week, the late-morning yield was reported at 4.28%.

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