Rates fall as applications edge up
By SAM GARCIA
4/26/2002

The average one-year adjustable rate mortgage (ARM) fell to it lowest level since April 1994. According to Freddie Mac's weekly survey of 125 thrifts, commercial banks and mortgage lending companies, the ARM fell to 4.91%, down 0.04% or four basis points (BPS) from last week.

Even with the ARM at such a low level, the Mortgage Bankers Association of America (MBA) said that ARM activity fell. In its survey of mortgage bankers, commercial banks and thrifts, MBA said that ARM applications represented 16 percent of total applications, down from 16.4 percent last week.

The drop in ARM activity may be the result of a narrowing spread between the ARM and fixed rates. While the average ARM has been falling, fixed rates have fallen even more. Freddie reported the average 30-year fixed rated mortgage (FRM) at 6.88%, down six BPS from the prior week. The resulting spread -- or difference -- between the 30-year FRM and the 1-year ARM dropped to 1.97% from 1.99% last week. During March, the spread had been as wide as 2.14%.

Freddie said the average 15-year FRM was 6.35, down seven BPS from last week. The spread between the 15-year and 30-year FRM rose to 0.53%, making the 15-year a more attractive option for borrowers.

"Although the economy is in recovery, that recovery is more fragile than had been previously thought, and Federal Reserve Chairman Greenspan confirmed this in his recent Senate testimony," said Freddie Mac chief international economist Robert Van Order . "A sluggish economy lowers any threat of inflation, thereby lowering mortgage rates."

Fixed rates were lowest in the west region of the country, where the average 30-year was 6.83%, and highest in the North Central region, where the 30-year was reported at 6.95%.

MBA said overall applications were almost five percent higher than last week. MBA reported that refinance applications represented 36.5 percent of total applications, down from nearly 80 percent in November.

Bankrate.com said 57% of the mortgage bankers, brokers and other industry experts it surveyed think rates will stay where they are now for the next five weeks, while 29% think rates will increase more than 2 BPS and 14% expect for rates to fall.

"An abundance of economic data over the next 10 days should provide some direction on the pace of economic recovery, said Bankrate's financial analyst, Greg McBride. "Firm indications of strength would push rates higher, but my vote says the evidence is mixed and recovery is lukewarm."

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