Investor moves from bonds to stocks hurt rates
By SAM GARCIA
7/5/2002

Mortgage rates edged up as the number of loan applications held steady from last week. While rates have become increasingly attractive over the past forty-five days, a strengthening stock market is stealing fuel from the latest refinance boom.

In its survey of 125 thrifts, commercial banks and mortgage lending companies, mortgage giant Freddie Mac reported the average 30-year fixed rate mortgage at 6.57%, just two basis points (BPS) -- or 0.02% -- higher than last week. The average 15-year was up four BPS to 6.03%. The spread between the 30-year and the 15-year fell to 0.54% from 0.56% last week. Fixed rates were lowest in the West, where the average 15-year still hovered just below six percent.

The average 1-year adjustable rate mortgage (ARM) fell three BPS to 4.58%, Freddie said. The spread between the ARM and the 30-year fixed rate jumped to 1.99% from 194 BPS last week. The share of total applications that were for ARM loans was 18.5%, down from 18.6% last week, according to the Mortgage Bankers Association of America's (MBA's) survey of mortgage bankers, commercial banks and thrifts. The slight drop in ARM applications follows last week's nine BPS drop in the spread between the 30-year fixed rate mortgage and the ARM.

MBA said overall applications were barely changed, up just 0.42% over the prior week. Falling purchase applications (down 4.8%) were offset by a 5.11% rise in refinance applications.

"With mortgage rates staying so attractively low, applications for refinancing ticked up to levels comparable to those in January when refinancing dominated the market, according to figures from the MBA," said Freddie's chief economist, Frank Nothaft. "So for those who missed their chance to refinance into lower rates in the recent past, they may now have a second chance to reduce their monthly mortgage payment."

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

Reflecting investor sentiment about the lack of serious terrorist attacks over the fourth of July, the stock market today headed straight into positive territory. According to Lion Inc., the Dow Jones Industrial Average was up 324.88 points near midday. With the stock market so deep in positive territory this morning, the 10-year Treasury is getting pounded, with the price down 24/32 and the yield jumping to 4.86%.

Somewhat offsetting Friday's bull market is unemployment data released today from the Bureau of Labor Statistics. According to the announcement, June's seasonally adjusted unemployment rate edged up to 5.9% from 5.8% in May. While an increase was in line with economists' expectations, according to an article today in the Wall Street Journal, job growth was weaker than expected.

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