Rock Bottom?

Record refis as fixed rates turn and ARM\'s fall
By SAM GARCIA
11/16/2001

Fixed mortgage rates appear to have hit bottom as they edged up this week. According to Freddie Mac's weekly application survey, the average thirty-year fixed rate mortgage (FRM) was 6.51%, six basis points (BPS) higher than a week ago, and the fifteen-year rose 4 BPS to 5.98%.

Dow Jones Newswires reported that the 10-year Treasury yields -- which are closely associated with mortgage rates -- were pushed above 4.70%, a level not seen since the Sept. 11 terrorist attacks. "Speculation in the market that the Fed may not act as aggressively as investors had expected caused long-term mortgage rates to move up this week," said Frank Nothaft, deputy chief economist for Freddie Mac.

The majority of mortgage experts surveyed by Bankrate.com expect mortgage rates to remain within two BPS of current rates during the next 30-45 days.

"Ugly is too kind a word for what is happening in the Treasury market, as prices plunged for a fifth straight day due to relentless selling pressure from a variety of sources," said Kurt Harrison, U.S. Treasury Trader for Bank of America. Treasury prices decrease as yields increase. "Further good news in Afghanistan and continued economic strength will spell further trouble for Treasuries," added Harrison.

The average one-year adjustable rate mortgage (ARM) -- which Freddie reported was down 24 BPS from last week to 5.06% -- was more than two percent lower than a year ago. As the difference between the average 30-year fixed rate and the 1-year ARM widens, the ARM becomes more attractive to consumers. This week, the spread was 1.45 percent, compared to only 0.48 percent a year ago.

Freddie reported that the average ARM rate in the Southwest region of the country fell 59 BPS to 4.72%, the lowest of all regions. States included in the Southwest region are TX, LA, NM, OK, AR, MO, KS, CO, NE and WY.

In early October, MortgageDaily.com reported that one research firm was predicting that the mortgage industry was headed for the biggest refi wave in history; reflecting last week's record low fixed rates, the Mortgage Bankers Association of America (MBA) earlier this week announced that the refinance application index reached 5534.5 -- an all-time record for the index and up nearly six percent from the prior week. In addition, MBA reported that applications for refinances represented 78.4% of total applications -- also a record.

While refinance applications were setting records, MBA reported that applications for purchases fell more than ten percent from last week. Government applications fell almost ten percent while conventional applications rose 3.51%.

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