ARM\'s getting more attractive
By SAM GARCIA
5/6/2002

Mortgage rates fell for the fifth consecutive week, fueling an increase in loan applications. 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 0.10% -- or ten basis points (BPS) -- from the prior week to 6.78%. A year ago the 30-year was at 7.14%.

HSH Associates said a weaker recovery picture helped push down fixed rates. In its weekly commentary, HSH noted that mortgage rates have benefited from financial and political trouble overseas, a wash of money out of stocks and into bonds, and other beneficial factors.

Freddie said the average 15-year FRM fell 9 BPS to 6.26%.

"There seems to be some concern in the marketplace that the economic recovery will be slower than expected, lessening the fear of inflation," said Frank Nothaft, Freddie Mac's chief economist. "This, of course, allowed mortgage rates to drift further downward this week."

Fixed rates were lowest in the West, where that average 30-year was 6.74%, and highest in the North Central, where the average was 6.87%.

The average one-year adjustable rate mortgage (ARM) fell sixteen BPS to 4.75 percent. The ARM -- which hasn't been this low since April 1994, when it averaged 4.65% -- is now 203 BPS better than the FRM, up from 1.97% the prior week.

Although the spread between the FRM and the ARM improved this week, it had worsened the prior week. The effect of this can be seen in a decrease in ARM activity. In its survey of mortgage bankers, commercial banks and thrifts, the Mortgage Bankers Association of America (MBA) reported that ARM applications represented 15.4% of total applications, down slightly. ARM activity may see an increase during the upcoming weeks as a result of the widening spread.

MBA said overall applications rose 9.2%. Refinance applications jumped 16% and represented 38.7% of total applications.

Rates should remain at their current levels over the next five weeks, according to Bankrate.com's survey of mortgage bankers, mortgage brokers and other industry experts. Bankrate.com said 66% of the respondents expect for rates not to change more than 2 BPS over the next 30-45 days, while the remaining respondents were evenly split between rising and falling rates.

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