Rising rates expected to hold steady
By SAM GARCIA
8/23/2002

Fueled by some of the lowest rates in more than thirty years, mortgage loan applications reached their highest level ever. As rates inched up this past week, some experts see mortgage rates hanging at their current levels for a while.

Total applications increased more than 11% from last week, according to the Mortgage Bankers Association of America (MBA). The survey of mortgage bankers, commercial banks and thrifts indicated that the jump in overall applications was fueled by a nearly 14% jump in refinance applications -- which nearly eclipsed the last record set in November. MBA said refinance applications represented 70.8% of total applications.

After falling for most of the past few weeks, fixed rates increased. According to mortgage giant Freddie Mac, the average thirty-year fixed rate mortgage rose 0.05% -- or five basis points (BPS) -- to 6.27%. Freddie reported the average 15-year at 5.71%, up eight BPS. The spread between the 15-year and the 30-year, which had been as wide as 62 BPS earlier this month, fell to 56 BPS this past week.

The average one-year adjustable rate mortgage (ARM) fell five BPS to 4.34%, Freddie said. While the ARM has fallen to its lowest point during the past few weeks, record low fixed rates have diverted many ARM prospects. MBA said that ARM applications represented 13.4% of total applications, down from as much as 18.8% just a few weeks ago.

The majority of experts at Bankrate.com expect for rates to remain at their current levels for the next five weeks. Bankrate.com's experts include mortgage bankers, mortgage brokers and other industry experts.

Doug Duncan, MBA's chief economist, said "the current low rate environment should continue late into the year."

As investors are becoming more confident with riskier investments, money is flowing from Treasuries back into stocks -- pushing Treasury yields higher. In addition, a looming supply of mortgage-backed securities created from the current refinance wave is likely to push yields higher as the securitizations hit the market. Adding more pressure is the increasing issuance of Treasury instrtuments to cover the federal budget deficit.

In morning trading, the 10-year Treasury note was up 10/32 to yield 4.28%, according to Lioninc.com. Last week, the midday 10-year yield was reported at 4.27%.

Article © MortgageDaily.com All Rights Reserved