ARM worsens as apps edge up
By SAM GARCIA
7/12/2002

The average thirty-year fixed rate mortgage reached its lowest level since November 2001, even as the one-year adjustable rate mortgage (ARM) worsened. An increase in overall applications was driven by a surge in purchase applications.

In its most recent weekly survey of 125 thrifts, commercial banks and mortgage lending companies, Freddie Mac reported the average 30-year fixed rate mortgage was 6.54%, down 0.03% -- or three basis points (BPS) -- from last week. During November, the 30-year had been as low as 6.45%.

Freddie said the average 15-year fixed rate mortgage was down 3 BPS to six percent. The 15-year remains a healthy 54 BPS better than the 30-year.

"The current uncertainty of corporate governance caused huge transfers of money into more stable and safer assets," said Frank Nothaft, Freddie Mac's Chief Economist. "Large money manager's shifted their investments into bonds, thereby lowering their yields and allowing mortgage rates to follow."

The average one-year ARM rose eight BPS to 4.66%, according to Freddie. While the ARM is 1.88% better than the 30-year fixed rate mortgage, it had been as much as 204 BPS better during June. Reflecting a decreasingly attractive ARM amidst improving fixed rates, the Mortgage Bankers Association of America (MBA) reported that ARM activity fell to 18% of total applications from a recent high of 18.6%.

MBA, which surveys mortgage bankers, commercial banks and thrifts each week, said total applications were up 3.3% from the prior week, driven by a nearly eight percent jump in purchase applications. MBA said applications for refinances were down slightly. Refinances represented about half of total applications, down from more than 78% during November.

Commenting on a one and one-half day July 4th holiday effect, MBA economist Phil Colling said, "Independence Day is a major holiday with financial markets closed, so we had to allow for at least a one-day holiday effect. Given that the holiday was on a Thursday, we assumed that many, but not all people would take a long weekend and not work on Friday."

Don't look for direction on mortgage rates from Bankrate.com this week; half of the mortgage bankers, mortgage brokers and other industry experts it surveyed expect for rates to remain unchanged, while the other half are evenly split between rising and falling rates.

The 10-year Treasury Note was up 2/32 early today, with the yield at 4.63%, according to Lion, Inc.

Article © MortgageDaily.com All Rights Reserved