Applications, Rates Worsen

ARM activity growing
By SAM GARCIA
3/22/2002

Rates climbed for the third straight week, with the average 30-year fixed rate mortgage (FRM) rising 0.06%, or six basis points (BPS) from last week to 7.14%, according to Freddie Mac's latest primary mortgage market survey. A year ago, the 30-year was a quarter percent lower than this week's average.

Commenting on this week's rate movements, Bankrate.com financial analyst Greg McBride said, "The Fed's statement on Tuesday was exactly what the markets suspected."

Freddie said the average 15-year FRM also rose 6 BPS to 6.65 percent.

Freddie surveys 125 thrifts, commercial banks and mortgage lending companies each week.

The average 1-year adjustable rate mortgage (ARM) edged up just 3 BPS to 5.11%. A year ago, the 1-year stood at 6.22% -- more than one percent higher than this week's average. The spread between the 30-year FRM and the one year ARM -- which a year ago was only 0.67% -- now stands at 2.03%, making the ARM more attractive to borrowers. The current wider spread helped push ARM applications to 16.2% of total applications, up from 14.1% last week and 9.1% a year ago, according to the Mortgage Bankers Association of America's (MBA) Weekly Mortgage Applications Survey.

In its survey mortgage bankers, commercial banks and thrifts, MBA said that refinance applications tumbled more than 21% from last week and were down more than 31% from last year. Refinances represented nearly 41% of total applications, down from more than 46% last week.

MBA said overall applications were down 11% from last week. Freddie Mac's chief international economist, Robert Van Order noted that slightly higher mortgage rates in March may push housing activity down.

Fifty-four percent of the mortgage bankers, mortgage brokers and other industry experts surveyed by Bankrate.com expect rates to stay within 2 BPS of their current level during the next five weeks, while the remaining forty-six percent expect rates to rise. None of Bankrate.com's respondents think rates will decrease.

"Mortgage rates are likely to settle into another range after rising the past couple weeks," said Bankrate.com's McBride. "It may take a surprise, such as an uptick in inflation, for rates to move appreciably in the coming weeks."

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