Fixed Rates, Apps Fall

ARM worsens
By SAM GARCIA
5/24/2002

Fixed mortgage rates fell last week, continuing to teeter in a narrow range below seven percent. Secondary marketing giant Freddie Mac reported in its weekly survey of 125 thrifts, commercial banks and mortgage lending companies that the average 30-year fixed rate mortgage (FRM) fell 0.08 percent -- or eight basis points (BPS) -- from the prior week to 6.81%. A year ago, the 30-year was 7.20%.

Freddie said the average 15-year FRM fell nine BPS to 6.28%. The spread between the 15-year and the 30-year edged up to 53 BPS from 52 BPS last week.

The average one-year adjustable rate mortgage (ARM) rose 4 BPS to 4.85%, according to Freddie. Because the ARM increased as the FRM decreased, the spread between the 1-year and the 30-year fell to 1.96% after reaching 2.08% last week. While future ARM activity will likely decrease as a result of the narrowing spread, ARM activity reached 17.5% of all applications according to the Mortgage Bankers Association of America (MBA). In the prior week's survey of mortgage bankers, commercial banks and thrifts, MBA said ARM activity was 17.0%.

MBA said overall applications were down more than five percent, and refinance applications were down over eight percent. Refinance applications are nearly 75% lower than their November highs.

"Although mortgage rates are at generationally low levels, refinancing should start to drop off, as just about everyone who had an incentive to refinance into a lower rate has done so," said Freddie Mac's chief economist, Frank Nothaft. "In the present economic environment, most who are refinancing now are doing so to take out some of the equity that has been building up over the last few years."

The majority of mortgage bankers, mortgage brokers and other industry experts surveyed by Bankrate.com expect rates to remain within two BPS of current levels over the next five weeks. Bankrate.com's Greg McBride noted that the current economy lacks a discernible trend, leaving mortgage rates rangebound.

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