While spread improves over 30-yr fixed rate, ARM activity down
By SAM GARCIA
4/5/2002

According to Freddie Mac's rate survey of thrifts, commercial banks and mortgage lending companies this week, the average 30-year fixed rate mortgage (FRM) fell 0.05% -- or 5 basis points (BPS) -- from last week to 7.13 percent.

"Currently the market is relatively stable while it looks to see if there are any remaining weak spots in the economy, and if so, what those spots might be," said Freddie Mac's chief economist, Frank Nothaft.

Freddie said that the average one-year adjustable rate mortgage (ARM) fell 12 BPS to 4.99%. The bigger decrease in the ARM pushed the spread -- or the difference between the FRM and the ARM -- to 2.14%, up from 2.07% last week.

While the spread widened for the fourth week in a row, the share of ARM applications fell. According to this week's applications survey of mortgage bankers, commercial banks and thrifts by the Mortgage Bankers Association of America (MBA), only 15.2% of loan applications were for ARM's -- down from 16.5% last week.

MBA said that overall applications were down almost two percent, while applications for refinance mortgages fell more than twelve percent. Mortgage applications for home purchases jumped nearly six percent.

Bankrate.com said that the majority of mortgage bankers, mortgage brokers and other industry experts it surveyed expect for rates to stay within 2 BPS of their current level over the next five weeks.

"At the moment, there seems to be nothing that would indicate anything that might seriously disrupt the market and cause mortgage rates to rise appreciably," Freddie's Nothaft said. "However, March employment figures are due out tomorrow and should reflect additional job growth for the year. Although that could put some upward pressure on mortgage rates, Freddie Mac economists expect those rates will not rise much further any time in the near future."

"The next 30 to 45 days contain quarterly earnings announcements, more economic data and a May 7 Fed meeting," said Bankrate.com financial analyst Greg McBride. "Although rates have been fairly static in recent weeks, rates will push higher within the next month. Not this week though."

In its 'Economic and Financial Forecast for 2002 and Beyond', Banc of America Securities estimates that the 10-year Treasury yield -- which was 4.8% during the fourth quarter of last year -- will reach 5.4% this quarter and 5.9% by the fourth quarter of this year. Mortgage rates tend to move with the 10-year Treasury yield.

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