ARM\'s gain momentum
By SAM GARCIA
4/19/2002

According to the weekly application survey of mortgage bankers, commercial banks and thrifts by the Mortgage Bankers Association of America (MBA), loan applications edged up from the prior week by nearly two percent. Loan applications were 16.2% below their levels a year ago, while refinance applications were down nearly 46 percent from the same week last year.

Pushing applications higher was a third straight week of falling fixed rates. In its weekly survey of 125 thrifts, commercial banks and mortgage lending companies, Freddie Mac said the average 30-year fixed rate mortgage (FRM) fell 0.05% -- or five basis points (BPS) -- from last week to 6.94%.

"Mortgage rates eased further following the release of inflation indicators for March," said Freddie Mac chief economist Frank Nothaft.

Freddie said the average 15-year FRM was 6.42%, down seven BPS. At a yield 52 BPS lower than the 30-year, the 15-year remains a relatively attractive alternative. Fixed rates were lowest in the west, where the average 30-year was 6.89 percent and the average 15-year was 6.42 percent.

The average 1-year adjustable rate mortgage (ARM) was 4.95%, down five BPS from last week, according to Freddie. The spread between the ARM and the 30-year FRM remains wide at nearly two percent. The low ARM combined with the wide spread has pushed ARM activity up to 16.4% of total applications, according to the MBA, near the highest level during the past year.

Half of the mortgage bankers, mortgage brokers and other industry experts surveyed by Bankrate.com expect for rates to stay within two BPS of their current levels over the next five weeks, while 36% expect rates to rise and 14% expect rates to fall.

"With tame inflation and questionable demand, the Federal Reserve is not pressed in any way to raise rates soon," said Bankrate.com's financial analyst, Greg McBride. "The longer-term risk remains that rates will increase as the economy strengthens."

"The increase in the core Consumer Price Index (CPI) was below expectations, suggesting that the Federal Reserve has more time to monitor the economy before needing to raise interest rates," Freddie's Nothaft added. "This should keep mortgage rates low."

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