Refinancing levels may see dramatic increases from first half of 2001
By SAM GARCIA
11/2/2001

The average 30-year fixed rate mortgage (FRM) fell eight basis points (BPS) from last week to 6.56%, according to Freddie Mac's Primary Mortgage Market Survey for the week ending November 2. Since Freddie began tracking the 30-year FRM thirty years ago, the average has only been lower one time; October 9, 1998, when it averaged 6.49%. A year ago, the thirty-year average stood at 7.73 percent.

Freddie reported that the average 15-year FRM fell nine BPS from the prior week to 6.04 percent, and the one-year adjustable rate mortgage (ARM) edged up one BPS to 5.26%. The ARM was 7.12 percent a year ago.

Wednesday's announcement by the U.S. Treasury that it will no longer issue thirty-year bonds should place downward pressure on rates that will show up in next week's survey from Freddie. Reflecting upcoming mortgage rate moves, Dow Jones Newswires (DJ) reported that the 6.5% mortgage backed security (MBS), the largest MBS coupon, is almost fully refinancable -- as the 10-year Treasury note yield fell to a low of 4.10% Thursday afternoon, from Monday's opening level of 4.50%.

Aside from the Treasury's move, Freddie Mac's chief economist attributes recent interest rate declines to economic data that reflect the aftermath of the September 11 attacks. "Currently, not only are there virtually no signs of anything that would push rates up in the immediate future, rates may continue to slip slightly into next week," Freddie's Robert Van Order said. Shortly after September 11th, MortgageDaily.com reported that rates would likely fall.

Treasury yields were also affected by economic worries in Argentina, which earlier this year were reported to be putting downward pressure on U.S. Treasuries yields and mortgage rates.

BankRate.com reported that the majority of experts it surveyed for the period November 1st to November 11th expect rates to fall more than two BPS over the next 30-45 days.

The Mortgage Bankers Association of America reported that according to its weekly survey of mortgage bankers, commercial banks and thrifts for the week ending October 26th, mortgage applications fell six percent from the prior week, with applications for refinances falling more than eight percent.

While mortgage application activity was reported to have fallen, this week's Treasury announcement is likely to drive refinances to record levels in the near-term. "We are running out of words to capture the scale of the upcoming refinancing wave," DJ quoted Lehman Brother's MBS analysts as saying Thursday. Another analyst at UBS Warburg reportedly said that the main impact of these low rates is that the refinancing wave will extend longer in time than previously expected, lengthened by the fact that originators were already operating near capacity.

DJ said that one Lehman Brothers' prepayment analyst expects the dollar volume of mortgage refinancing to increase dramatically from the level of the first half of the year.

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