ARM'd & Ready

Rising fixed rates slowing activity, but ARM\'s are still falling
By SAM GARCIA
12/14/2001

Applications for refinance mortgages fell for the fourth straight week, reflecting the mostly rising fixed rates during the period. The Mortgage Bankers Association of America (MBA) reported that refinance applications were down more than ten percent from last week. MBA says its survey of mortgage bankers, commercial banks and thrifts covers approximately 40 percent of all U.S. retail residential mortgage originations.

MBA said that overall mortgage applications were down seven percent, but purchase applications fell only a little more than two percent from the prior week. Purchase applications -- which have shown resilience during the most recent period of rising rates -- had been up each of the prior four weeks.

The average thirty-year fixed rate mortgage (FRM) jumped a quarter percent from last week to 7.09%, according to Freddie Mac. Fixed rates were highest in the North Central region, where the average 30-year FRM was 7.16 percent. States located in the North Central region include OH, IN, IL, MI, WI, MN, IA, ND and SD.

Freddie said that the average fifteen-year FRM rose 27 basis points (BPS) from last week to 6.57%.

Freddie's weekly survey of 125 thrifts, commercial banks and mortgage lending companies -- is roughly proportional to the level of mortgage business that each type commands nationwide.

"Although long-term rates bumped up this week, mortgage rates today are in about the same range they were at the beginning of the year," said Frank Nothaft, who was recently appointed to the post of Chief Economist for Freddie Mac.

Sixty-nine percent of the mortgage bankers, mortgage brokers and other industry experts surveyed by Bankrate.com this week say rates will fall more than two BPS during the next 35 to 45 days. However, Bankrate's own financial analyst, Greg McBride, thinks rates will increase. "Two steps up and one step back has been the recent dance step for mortgage rates," said Mr. McBride. "The hint of a potential rate cut in January, continued corporate earnings warnings and a lineup of economic data could make for more volatility the remainder of the week."

One bright spot in this week's numbers is the adjustable rate mortgage (ARM). Freddie reported that the average 1-year ARM was down two BPS to 5.19%. Freddie's economist said that the ARM edged down in response to the Fed's recent actions. The spread between the 30-year FRM and the 1-year ARM widened to 1.90% from 163 BPS last week. MBA said ARM activity nudged up to 11.6 percent of all loan applications from 11% last week.

For those looking for more good news, check out these statistics.

* Refinance applications are still 260 percent higher than a year ago
* Conventional applications were reported 86 percent higher than last year
* Overall applications are up 71% during the past twelve months

According to Freddie's Nothaft, fixed rates "are still at historically low levels, which help keep housing more affordable for first-time homebuyers. This should ensure that the housing sector remains vibrant going into the new year."

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