A rise in interest rates this past week reflects volatile market conditions, nervous mortgage-backed securities investors and an attempt by lenders to manage refinance demand. Jumbo pricing has deteriorated over the past month.
In its Primary Mortgage Market Survey for the week ended Thursday, Freddie Mac reported the average 30-year fixed-rate mortgage at 4.22 percent, 7 basis points higher than last week’s average. A year earlier, the rate was 4.36 percent.
Freddie’s chief economist, Frank Nothaft, attributed the weekly rise to improved reports on the housing market.
A look at Treasury note yields posted by the Department of the Treasury indicates that the yield on the 10-year Treasury rose 15 BPS from last Thursday to today’s close. Given no major movement in the Treasury market during the next week, mortgage rates could be around 7 BPS better in next week’s reports.
An equal share — 38 percent — of panelists surveyed by Bankrate.com for the week Aug. 25 to Aug. 31 predicted rates will either fall at least 3 BPS over the next week or remain unchanged. Nearly a quarter expected an increase.
But spreads between Treasury note yields and mortgage rates have been widening as banks try to get a grasp on rising refinance demand and investors worry about possible Obama administration plans to provide some sort of mass refinance program, the Wall Street Journal reported. The article suggested that a 45-basis-point tumble in Treasury yields might only push mortgage rates down by less than 10 BPS.
On a longer-term basis, secondary lender Fannie Mae predicted in its Housing Forecast:Â August 2011 that the 30-year will average 4.5 percent in the second half of this year then increase 10 BPS each quarter through the end of 2012.
At the Mortgage Bankers Association, the 30-year is expected to rise from 4.4 percent this quarter to 4.6 percent in the fourth quarter. After increasing all of next year, the 30-year is expected to end 2012 at 5.2 percent.
The jumbo 30-year mortgage was priced 65 BPS higher than the conforming 30-year in the U.S. Mortgage Market Index report for the week ended Aug. 19 from Mortech Inc. and MortgageDaily.com. The spread ballooned from 53 BPS a week prior and just 41 BPS a month prior.
Freddie said that the average 15-year fixed-rate mortgage was up 8 BPS over last week to 3.44 percent. The spread between the 15-year and the 30-year narrowed to 78 BPS from last week’s 79 BPS.
The hybrid adjustable-rate mortgage, which is based on the one-year Treasury yield and fixed for five years, was off a basis point to 3.07 percent in Freddie’s survey.
But the one-year Treasury-indexed ARM moved up 7 BPS to 2.93 percent, according to Freddie. The one-year was 3.52 percent during the same week last year.
Fannie projects that the one-year will average 2.9 percent this quarter, 3.0 percent in the fourth quarter and 3.1 percent during the first six months of next year. The one-year is projected to reach 3.6 percent by 2013.
The one-year’s underlying index, the yield on the one-year Treasury note, closed today at 0.10 percent, the same as last Thursday, Treasury Department data indicate.
The six-month London Interbank Offered Rate, or LIBOR, maintained its upward momentum, rising to 0.48 percent as of Wednesday from 0.46 percent a week earlier, Bankrate.com reported. The activity reflects rising concern over European banks.
ARM share of new loan inquiries was lifted to 6.63 percent from 6.33 percent a week prior in the Mortgage Market Index report.
Based on loan applications, Fannie has second-half ARM share at 5 percent. ARM share will peak at 7 percent in the second-quarter 2012.
MBA expects ARM share to ease from the third quarter’s 7 percent to 6 percent in the fourth quarter then spend most of next year at 7 percent.
