15-year spread widens
By SAM GARCIA
7/26/2002

Fixed mortgage rates fell to their lowest point in more than a decade, with the 15-year showing the most improvement. Low rates pushed mortgage applications to their highest level since the peak of the most recent refinance boom.

The average 30-year fixed rate mortgage fell to 6.34%, its lowest point since Freddie Mac began tracking the average 31 years ago. The 30-year was down 0.15% -- or fifteen basis points (BPS) -- from last week and down 69 BPS from a year ago.

Each week, Freddie surveys 125 thrifts, commercial banks and mortgage lending companies.

"Investors, concerned with the stock market, are putting more of their money into Treasuries," said Freddie's chief international economist Robert Van Order. "This, in turn, drives down the cost of borrowing. As a result, we are experiencing record-breaking low mortgage rates that are fueling yet another rush to refinance."

Freddie said the average 15-year fixed rate fell 17 BPS from last week to 5.76%, its lowest point since Freddie began tracking the fifteen-year in 1991. The spread between the 30-year and the 15-year widened even further this week to 58 BPS from 56 BPS last week, and is at its greatest point since MortgageDaily.com has been covering rate activity.

Adjustable Rate Mortgages (ARM's) joined the party and fell to their lowest level since 1994. Freddie reported the average ARM at 4.31%, down 19 BPS from the prior week. ARM activity edged up to 18.5% of total applications from 18% last week, according to the Mortgage Bankers Association of America (MBA).

MBA, which surveys mortgage bankers, commercial banks and thrifts each week, said total mortgage applications rose 12.9% from last week to their highest level since November. The increase in applications was driven by a nearly 29% jump in refinance applications. The level of refinance applications is still 36% lower than the highs reached last November.

"While the refi boom had softened earlier this year, low interest rates the last five weeks have rekindled a stronger refinance wave not seen since last year," said MBA economist Phil Colling. "At the current record low mortgage rates, it is possible that some people who had refinanced earlier at a higher rate are now refinancing again."

MBA said purchase applications were down 6.8% from last week. While purchase activity was down for the week, MBA recently issued a midyear mortgage finance forecast indicating that the total dollar volume of purchase mortgages is expected to reach a record $989 billion this year, up from $873 billion in 2001.

Half of the mortgage bankers, mortgage brokers and other industry experts surveyed by Bankrate.com this week expect for rates to fall, while most of the remaining respondents expect rates to stay where they are.

Freddie's Van Order said he'd be surprised "to see rates fall much lower than today's figures. For that to happen, the stock market would have to tumble even further than it already has."

The 10-year Treasury Note closed up 27/32 yesterday, with the yield falling to 4.38 percent, according to lioninc.com.

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