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September 2019
« Sep    

Home Mortgage Rates Hit 2010 Low

Mortgage rates fell last week as the turmoil in Europe sparked a flight to safety among investors. According to financial publisher HSH, mortgage interest rates ended at 5.01% last Friday, down from 5.15% at the beginning of the week. But there’s no guarantee that home loan rates will stay low because there’s so much volatility in the market right now. If the Euro rallies or we get good economic news in U.S. economy would surely raise interest rates almost as quickly as they declined. Keith Gumbinger of HSH said, “These things are fleeting.”

The Mortgage Bankers Association said that low rates caused a flurry of refinance activity, with applications up 15% from the previous week. But new home loan applications dropped by nearly 10%, a possible sign that the expiration of the home-buyer tax credit pulled some sales into April that might have occurred in May. Current VA rates were lower than anticipated and VA refinancing volumes rose sharply as a result. Conforming home mortgage rates ended last week just above record lows set in December. Surprisingly, rates have fallen below where they were at the end of March, when the Federal Reserve ended its purchase of $1.25 trillion in mortgage-backed securities. Most analysts had expected rates to move up after the Fed wound down its purchases.

Online Loan Shoppers See Lower Mortgage Rates

CBS News reported that the Greek debt crisis led to an unexpected drop in fixed mortgage rates. The Royal Bank, along with all of the other four big banks, dropped the popular five-year fixed closed mortgage 0.15 percentage points to 6.10% on Tuesday. Most banks also dropped the benchmark rate for their discounted five-year mortgage by a similar amount to 4.70%. Some online and smaller mortgage lenders offer no cost refinance loans. This is good news for online home loan shoppers who’ve experienced higher fixed mortgage rates that have risen over 1% in the last month. Many banks followed with reported lower mortgage rates for home buying in the US and Canada. Longer-term fixed interest mortgage rates typically follow longer-term bond yields. The Greek debt crisis put a stop to rising bond yields as traders moved money out of risky assets. “Both treasuries and Government of Canada bonds have recently benefited from lower mortgage interest rates in the Unites States.” Many mortgage loan experts say the lower interest rates are just temporary and note that bond yields are already edging higher as the EU’s bailout package eases Greek default concerns. Adjustable rate mortgage loans are tied to the overnight lending rate. That mortgage interest rate has been at a rock-bottom 0.25% for over a year.

Fed Reserve Raises Interest Rates

In subprime mortgage debacle and financial crisis, the Federal Reserve urged the national banks to step up to its discount window, pushing the banking industry to get over the stigma on borrowing from the government. When banks and finance companies stopped lending to each other overnight altogether in the fall of 2008, discount window for home mortgage loans became even more crucial. The Fed even narrowed the penalty banks paid for using discount window money, moving the discount rate closer to the Federal funds rate during the crisis.

Watch Video on the Fed Raising the Discount Rate

According to mortgage executive, Bryan Dornan, “Clearly, the Fed is signaling a change in direction for interest rates.”  Dornan continued, “Now that the Fed is raising rates, expect mortgage rates to begin retreating upwards.” Now that the crisis has blown over, the Federal Reserve wants things to get back to normal. Late Thursday afternoon, it surprised the markets by raising the discount rate it charges though its emergency window to 0.75% from 0.50% while keeping its targeted Federal funds rate at between zero and 0.25%. The change will take effect on Friday. Meanwhile, the duration of the mortgage loans will revert to the normal overnight period from 30 days come mid-March. Though many thought the Fed was headed in this direction, most everyone thought it wouldn’t act until its next Open Market Committee meeting next month.

The Fed explained in a brief statement that it wants banks to return to the private debt markets. The increase “will encourage depository institutions to rely on private funding markets for short-term credit and to use the Federal Reserve’s primary credit facility only as a backup source of funds.” The central bank added the move was not a signal it was tightening money nor a signal its outlook on the economy had changed. It is a further indication; however, that the government is pulling away from the extraordinary assistance it has given the financial markets over the last few years.

Later this spring the Fed is expected to stop buying bad credit mortgages and mortgage-backed securities, a move that is worrying those in the housing markets who had hoped for a smooth recovery. The government’s numerous bank industry lifelines have been criticized for allowing banks to make heaps of money by borrowing from the Fed at next to nothing and profiting from the spreads they can make by investing that cash in the Treasury markets. But the Fed also has to come up with an exit strategy for a balance sheet that has become bloated with Wall Street’s unwanted assets. Forcing banks back to the short-term debt markets for funding (or even to rely on their own deposit taking operations) is another baby step to getting the banks out of the emergency safety net.

Which Way Will Mortgage Rates Go?

Mortgage interest rates continue to hover around the 5% mark. Conforming, FHA and VA mortgage rates all continue to be reported in the low 5 percent range for home loans and mortgage-refinancing. There have been positive signs in the last quarter regarding job losses, the financial markets and even the housing sector, but economic recovery is likely still a few months away, Freddie Mac’s chief economist said today. In an article titled, “Are We There Yet?” the outlook from Freddie Mac’s Frank E. Nothaft for 2010 is mostly positive, although there are cautionary flags ahead – particularly with higher mortgage interest rates and the expiration of home-buyer tax credits.

Most economists will be looking at the aftermath from the government’s winding down of its purchases of mortgage loan backed securities from Freddie Mac and Fannie Mae. By discontinuing its purchase program in April, the central bank is hoping that private buyers of mortgage-backed securities will return, and rates won’t rise much after that. Investors in mortgaged-backed securities have stayed mostly on the sidelines. “U.S. Department of the Treasury MBS purchases were completed by year-end, and Federal Reserve purchases of MBS and Freddie Mac and Fannie Mae debt are scheduled to terminate by the end of the first quarter 2010 – both potentially pose the risk of a rise in mortgage rates relative to benchmark yields,” Nothaft said.

Another potential strain on interest rates is the expiration of tax credits for home buyers. Under the federal program, home purchase contracts must be signed by April 30 to qualify for the tax credits. “The tax credits have likely caused some families to purchase a home earlier than they might have otherwise, thus moving sales forward in time and helping support the housing market. High affordability and improved buyer sentiment further bolster sales,” Nothaft wrote.

So when will we get there? “While there may be some bumps along the way, the transition into economic recovery appears to be underway as we head into 2010: real economic growth in the 3 to 3.5 percent range, a cessation of job losses in the first quarter, rising home sales, and a strengthening of housing starts in some markets,” Nothaft wrote “We should be ‘there’ in the next few months, if not already.” Read the original article online.

Mortgage Rates Inch Up

Mortgage interest rates continue to teeter the monumental 5% mark and the demand for mortgage refinancing continues to rise. One problem for most loan applicants is that they do not qualify because conventional and FHA mortgage guidelines have tightened to the point that only a small percentage of borrowers qualify for home refinancing or new home loans. The financial crisis and Great Recession have their roots in the housing bust. When it comes, a lasting recovery will be evident in a housing rebound. Unfortunately, housing appears to be weakening anew.

Housing figures released last week show that after four months of gains, home prices flattened in October. At that time, low current mortgage rates courtesy of the Federal Reserve and a home buyer’s tax credit (courtesy of Congress) were fueling sales. That should have propped up prices. But it was not enough to overcome the drag created by a glut of 3.2 million new and existing unsold single-family homes — about a seven-month supply.

The situation, we fear, will only get worse in months to come. Rates already are starting to rise as lenders brace for the Fed to curtail support for mortgage lending as early as the end of March. The home buyer’s tax credit is scheduled to expire at the end of April. And a new flood of foreclosed homes is ready to hit the market. It is increasingly clear that the Obama administration’s anti-foreclosure effort which pressed mortgage lenders to reduce interest rates — isn’t doing nearly enough. High unemployment rates also mean that many borrowers who did qualify for aid have been unable to keep up with even reduced monthly payments.

Mortgage Rates Rising as US Treasuries Stop Buying Mortgage Securities

A recent article highlighted that the Federal Reserve’s decision to stop buying mortgage loan securities (MBS) should cause an increase in mortgage rates. But that won’t be the only thing driving up long-term interest rates: the Treasury’s trouble going forward in selling debt will also contribute to higher mortgage rates, according to a Morgan Stanley economist. According to Bloomberg, Yields on benchmark 10-year notes will climb about 40% to 5.5%, the biggest annual increase since 1999, according to David Greenlaw, chief fixed-income economist at Morgan Stanley in New York. The surge will push interest rates on 30-year fixed mortgage loans to 7.5% to 8%, almost the highest in a decade, Greenlaw said.

These are very high mortgage rates -and much higher than we’re used to seeing over the past several years. They should cut significantly into the demand for refinancing and even new home purchases. Mortgage rates like that could also worsen the foreclosures crisis, as many adjustable-rate mortgage loans (ARMs) have benefited from historically low interest rates. Once they adjust to near, or over, double-digits, many more homeowners with ARMs will be force to fold. The cause of this increase in home mortgage rates comes from what this economist believes will be a higher yield demanded for government Treasury securities. Those are generally considered risk-free rates, so any mortgage bearing a similar long-term coupon will consist of its default risk premium added to that risk-free rate. FHA guidelines are tightening and most conforming and jumbo loan programs have seen requirements increase for income documentation.

Bloomberg explains that the government debt will become more expensive because of both supply and demand: The U.S. will face increased competition from other debt issuers, spurring investors to demand higher yields as the Federal Reserve ends a $1.6 trillion asset-purchase program, according to James Caron, head of U.S. interest-rate strategy in New York at Morgan Stanley. The central bank was the largest purchaser of Treasuries in 2009 through a $300 billion buyback of the securities completed in October. The Treasury will sell a record $2.55 trillion of notes and bonds in 2010, an increase of about $700 billion, or 38%, from this year, Morgan Stanley estimates. Caron says total dollar-denominated debt issuance will rise by $2.2 trillion in the next year as corporate and municipal debt sales climb. So in addition to the pressure that I mentioned earlier stemming from the Fed’s departure from the MBS market, the broader investment community will likely drive rates higher on long-term debt as well. While bad news for the housing market, this is probably good news for sensible investing.

Federal Reserve Hints that Mortgage Rates Will Remain Low

The Federal Reserve is expected to leave mortgage interest rates at a record low this week, aiming to entice homeowners and businesses to borrow and spend and bolster the economic and housing recovery. The big question is whether Chairman Ben Bernanke and his colleagues will give hints about when they will reverse course and start boosting rates. A decision to raise interest rates is still months away. But plans for reeling in the unprecedented amount of money the Fed has plowed into the economy is likely to dominate its private discussions Tuesday and Wednesday. The Fed is expected to announce its policy decisions on Wednesday afternoon.

The current mortgage rates remain at record lows. Borrowers can find mortgage loans as low as 4.375% for 15-year fixed terms. Home loan applicants can find 30-year fixed mortgage rates as low as 4.625%, so the era of low mortgage rates continues. The central bank faces a high-stakes challenge: If it removes the stimulus too soon, it could short-circuit the recovery. But if it moves too late, it could unleash inflation or new speculative asset bubbles. Each scenario could feed a fresh economic crisis. Bernanke, who’s seeking a second term as Fed chief, has made clear his No. 1 task is sustaining the fragile recovery. Last week, he and other Fed officials signaled they are in no rush to start raising rates. At the same time, Bernanke has sought to assure skeptical lawmakers and investors that when the time is right, he’s prepared to sop up all the money.

Some encouraging signs for the economy have emerged lately. The nation’s unemployment rate dipped to 10% in November, from 10.2% in October. And layoffs have slowed. Employers cut just 11,000 jobs last month, the best showing since the recession started two years ago. Still, the Federal Reserve predicts unemployment will remain high because companies won’t ramp up hiring until they feel confident the recovery will last. Mortgage refinancing application volumes remain high and most lenders are reporting a 6 to 8 weeks turn-time for closing loans.

Consumers did show a greater appetite to spend in October and November. But high unemployment and hard-to-get credit are likely to restrain shoppers during the rest of the holiday season and into next year. “The economy isn’t on solid footing yet,” said Chris Rupkey, an economist at the Bank of Tokyo-Mitsubishi. “So it’s best for the Fed to keep with the script of low interest rates.” The economy finally returned to growth in the third quarter, after four straight losing quarters. And all signs suggest it picked up speed in the current final quarter of this year. But analysts worry that the economy could weaken next year as government supports fade.

Last week, Bernanke warned that the economy confronts “formidable headwinds.” They include a weak job market, cautious consumers and tight credit. Against that backdrop, the Fed is all but certain to keep the target range for its bank lending rate at zero to 0.25 %, where it’s stood since last December. The Fed also is likely to retain a pledge first made in March to hold rates at such levels for “an extended period.” The central bank also isn’t expected to make any major changes to a program, set to expire in March, to help further drive down mortgage rates. In response, commercial banks’ prime lending rate, used to peg rates on home equity loans, certain credit cards and other consumer loans, will remain about 3.25 %. That’s its lowest point in decades.

Ultra-low mortgage interest rates are good for borrowers who can get a loan and are willing to take on more debt. But those same low rates hurt savers. They’re especially hard on people living on fixed incomes who are earning measly returns on savings accounts and certificates of deposit. Tight credit is clobbering small businesses, normally an engine of job creation during economic recoveries. That’s crimping their ability to hire and expand. Many small businesses rely on smaller banks for credit. But troubled commercial real estate loans are concentrated at those banks. That’s hobbled the flow of credit. At a White House meeting Monday, President Barack Obama urged top bankers to increase lending to small businesses. Afterward, some banks pledged to do so. Article was written by By JEANNINE AVERSA.

Current Mortgage Rates Remain Low

MBA reported the current mortgage interest rates for thirty-year fixed-rate home loans fell to 5.01 last week from 5.04%.   These low mortgage rates have spurred a refinancing frenzy across the country.

But that number remains more than the national average of 4.95%, according to the real estate Web site. According to Zillow. New York and Illinois had the highest rates at 5.15% and 5.1%, respectively. Colorado, Virginia and Washington had the lowest at 4.9%.

National mortgage rates declined as well. The 15-year fixed mortgages fell to 4.37% from 4.39% and 5-1 adjustable rate mortgage loans dropped to 3.83% from 3.85 the previous week. The volume of mortgage loan applications also fell to 12,696 from 13,081. Last week’s tally included 52% refinance loans, 46% purchase loans and 2% for home equity.

Will Mortgage Rates Remain Low in 2010?

The Fed’s Federal Open Market Committee announced that they were leaving mortgage rates unchanged.  However, what wasn’t reported by main stream news organizations is the real story. According to the statement released by the Federal Reserve, in an effort to “provide support to mortgage loan and housing markets” they will “purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt.”  Additionally, “they expect to gradually slow the pace of these purchases in order to promote a smooth transition. So just what does this mean for mortgage interest rates?  “In short - They are going to go up.  It’s simple supply and demand,” says Scott Messina, publisher of Mortgage Market Live.  “Just how fast remains to be seen, it really all depends on how fast the Fed turns off the spigot.”

2009 began with low mortgage rates in an effort to stimulate housing and the economy at large, the Federal Reserve began buying bad credit mortgage debt.  Without this “help” from the Fed, mortgage rates would have been forced higher to attract more investors.  Instead the Fed has been quietly buying this oversupply to keep interest rates artificially low. “The problem of course, is once this helping hand is pulled back, rates have nowhere to go but up.” added Messina.  “The saving grace is that mortgage rates will likely be very volatile for the next several months. Originators should always remember that volatility can equal opportunity.” “If you’ve watched mortgage rates over the last several weeks, there has been at least one day each week that was preferable for rates. Loan officers that knew which day to lock in their customers loans have saved their customers, on average over a quarter of a percent in rate.”

Rates and Mortgage Loan Applications Rise

Usually when rates rise, mortgage loan volumes drop, but this week, loan application rose even after the spike in mortgage rates. MBA reported that Mortgage interest rates on thirty-year fixed rate home loans rose slightly to 5.24% last week, from 5.15% in the previous week, but still below 5.38% of two weeks ago, according to the Mortgage Bankers Association’s weekly survey of mortgage applications. The mortgage refinance index rose by 12.7% last week from the previous week, the third gain in four weeks, and total mortgage application volume is up 34% from the same time last year on an un-adjusted basis. While low by historical standards, rates haven’t dropped below the magic 5% threshold that they crossed as recently as May.

The index that measures new home purchases rose by 1% on solid demand for government loans, the fourth straight weekly gain. Refinance activity accounted for 56.5% of all home loan applications. Meanwhile, more borrowers appear to be turning to adjustable-rate mortgage loans. ARMs accounted for 6.5% of all mortgage originations last week, up from lows of 3% when mortgage rates dropped below 5% in April and May.

Treasurys Drop

Treasury prices turned lower on Wednesday, pushing long-term yields up for the first day in three, ahead of an auction of a record amount of 10-year notes and the conclusion of the Federal Reserve’s two-day policy meeting.  Yields on the current 10-year note rose 2 basis points to 3.69%. A basis point is 0.01%. Mortgage interest rates climbed last week and loan application volumes declined as a result.

Yields on 2-year notes, more sensitive to expectations for interest rates, remained lower by 2 basis points to 1.15%.  Bids on the $23 billion 10-year debt are due at 1 p.m. Eastern time. The auction is the second of three this week in the Treasury Department’s quarterly refunding.   “Caution [is] recommended with $23 billion 10-year notes one hour before the FOMC decision and $15 billion bonds on tap” in 30-year bonds on Thursday, said John Spinello, Treasury strategist at primary dealer Jefferies & Co., one of the 18 primary dealers that trade with the Fed and are required to bid at government auctions.  The U.S. will sell more than 2 trillion in debt in the fiscal year ending in September to finance a bevy of government stimulus programs, and central-bank activities to ease strains in financial markets and cushion the economy’s slowdown.  

Why Mortgage Rates Are Rising

The spread between the 2 year and 10 year treasury yields continues to widen.    Federal Reserve policies largely control the direction of shorter-dated notes, while the overall bond market and investors largely determine the direction of longer-dated bonds.

The difference between short and long-term bonds is called the ‘yield spread’ and it is a measure of varied expectations.  This yield spread chart clearly shows that what the Fed policies are doing is largely different than the overall expectations from the bond market.  This is one reason why interest rates on certain types of home loans such as refinance mortgages, purchase and equity loans have risen lately even as the Fed keeps its target interest rate at 0-0.25%.   The bond market is seeing the future differently than the Federal Reserve.

Mortgage Interest Rates Rise

Mortgage rates on 30-year home loans rose last week and were poised to go higher as investors demanded higher rates for long-term government debt, which is closely tied to FHA mortgage rates.

Freddie Mac said Thursday that average rates on 30-year fixed-rate mortgages rose to 4.91 percent from an average of 4.82 percent the previous week. Rates in Freddie Mac’s survey have been below 5 percent for more than two months. If they rise higher, that will diminish the appeal of refinancing for many borrowers.

The yield on the Treasury’s 10-year note - a key benchmark for home mortgages and other kinds of loans - reached its highest level since November earlier this month. The worry is that rising bond yields could drive mortgage rates higher and also increase the cost of borrowing for businesses. That could short-circuit the nation’s efforts to emerge from a deep recession and the worst housing crisis in decades.

The average rate on a 15-year fixed-rate mortgage rose to 4.53 percent last week from 4.5 percent the previous week, according to Freddie Mac.

Interest rates on five-year adjustable-rate mortgages inched up to 4.82 percent from 4.79 percent while rates on one-year adjustable-rate mortgages fell to 4.69 percent from 4.82 percent.

The mortgage rates do not include points. The nationwide fee averaged 0.7 of a point last week for 30-year and 15-year mortgages, and 0.6 of a point for five-year and one-year adjustable rate loans.


Mortgage Loan Applications Increased as Interest Rates Rose

Bloomberg reported this week that mortgage loan applications in the U.S. gained last week, helped by affordable mortgage rates that enticed homeowners to seek mortgage refinancing. The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan rose 2.3% to 915.9 in the week ended May 15th, from 895.6 the week before. The group’s refinancing gauge increased 4.5%. The average rate on a thirty-year fixed mortgage loans fell for the second straight week and was near the record low reached at the end of March.

Lower borrowing costs, supported by an increase in Federal Reserve purchases of longer-term securities, and reduced prices are boosting mortgage rates for home refinancing and purchases of homes and may help settle the slumping housing market. “The broader housing market certainly looks to be stabilizing,” Zach Pandl, an economist at Nomura Securities International Inc. in New York, said before the report. “Home loan applications responded very well to the Fed’s purchases of Treasuries and mortgage-backed securities.” The mortgage bankers Association reported that their mortgage refinancing gauge rose to 4,794.4, from 4,588.6 the previous week. The purchase index fell 4.4% to 254 last week, from 265.7 the week before. The share of applicants seeking to refinance loans rose to 73.6% of total applications last week from 71.9%.

Mortgage Interest Rates Dropping

With the government committed to buying troubled mortgage assets, lenders and banks are more comfortable extending credit with low rate home mortgages. FHA loan rates and interest rates for new home financing continue to see lending reports indicating the lowest rates in fifty years.

Will Mortgage Interest Rates Drop Further?

CBS News contributor Ray Martin discusses mortgage interest rates, loss mitigation and he addresses other financial questions about the stimulus package and the housing industry.

Treasury Secretary Tim Geithner said in a press conference “Just as this administration has intensified our efforts to help American homeowners, those who would seek to prey on the most vulnerable are intensifying their tactics as well, often through mortgage relief scams and foreclosure prevention companies,” at an announcement in Washington. “These are predatory home mortgage schemes designed to steal Americans of their savings and potentially their homes.”

Mortgage Rates Decline as Refinance Applications Rise

Low mortgage rates continue to stimulate refinancing activity and the Obama administration hopes to encourage more first time buyers to seek financing to jump-start the struggling housing markets. Mortgage refinance applications jumped last week, as low mortgage interest rates fueled the increased refinance activity. The Mortgage Bankers Association said Wednesday its weekly application index climbed 21.2 % for the week ended March 13.

KMG Publisher, Jason Cardiff told Mortgage Related News that he anticipates that the FHA mortgage rates could decline to 4.5% or even 4.25%. Cardiff said, “Obama is serious about reviving the cash flow for homeowners on Main St. and the Federal Reserve made another move to pump more blood back into the housing sector.”

The index was 876.9, up from 723.4 a week earlier, the trade group said. Almost 73% of mortgage applications came from borrowers seeking to mortgage refinance loans at reduced interest rates, not home buyers. The lending survey provides a snapshot of mortgage lending activity involving mortgage bankers, commercial banks and thrifts. It covers about half of all new residential home loans made each week. An index value of 100 is equal to the application volume on March 16, 1990, the first week the association tracked it.

Mortgage Interest Rates Drop

Mortgage interest rates dropped based on news that the Federal Reserve has bought a total of $217 billion in securities that were mortgage backed, according to market researcher Wrightson ICAP . The Federal Reserve in New York jumped into that market and started buying debt sold off by the big mortgage finance companies that included Fannie Mae, in January.

The Federal Reserve in New York jumped into that market and started buying debt sold off by the big mortgage finance companies that included Fannie Mae, in January.  It also started buying the mortgage-backed securities bundled by the agencies.

Both steps positioned the Fed as buyer in secondary mortgage markets that had seized up but are vital to enabling lenders to make new home loans. Mortgage lenders sell many of their loans to institutional investors, and higher rates charged by these investors to hold pooled bad credit mortgages make it harder for originators to offer lower rates on new mortgage loans. Conventional and FHA mortgage rates were both slightly lower than the previous week.

In a sign that the purchases are driving down rates and encouraging private investors to also step in, the gap’s dropped in just a few months between Treasuries and the interest rates that the agencies and mortgage-backed securities have to carry to make them attractive. Yields on mortgage-backed debt dropped to 0.87 of a percentage point more than Treasuries, down from 1.90 points in December, and are near the lowest seen since late in 2007, according to a Merrill Lynch index. Request mortgage rate updates for home financing with Fannie Mae, Freddie Mac and FHA interest rate updates online.

Mortgage Rates Holding Steady

The 30-year fixed rate rests at 5.41% as President Obama unveils foreclosure prevention program.

o Current Mortgage Rates

o 30 yr fixed mortgage5.17%

o 15 yr fixed mortgage4.78%

o 30 yr fixed jumbo mortgage6.92%

o 5/1 ARM 4.80%

o 5/1 jumbo ARM 5.33%

Mortgage rates remained flat last week, as President Obama unveiled a $75 billion plan to help prevent foreclosures. The average 30-year fixed mortgage stayed constant at 5.41% for the week ended March 4, according to

The average jumbo 30-year fixed rate reached the lowest level in nearly two years, slipping to 6.77% from 6.87%. The average 15-year fixed rate mortgage ticked up to 4.94% from 4.93%.

Adjustable rate home loans fell, with the 1-year ARM pulling back to 5.43 from 5.58%; the 5/1 adjustable-rate mortgage decreasing to 5.39% from 5.40%.

Mortgage rates are continuing their sideways movement, though they may tilt higher as long-term concern grows regarding how the government will manage its growing budget deficit, according to Weiss Research analyst Mike Larson. “Mortgage interest rates are moving sideways with an upward bias. There are some concerns for how we’ll pay for the stimulus and everything else. And despite the dismal economic news the market is getting, there’s some concern about supply overshadowing that, and that’s impacting bond prices,” Larson said.

President Obama’s $75 billion foreclosure prevention program went into effect Wednesday. The Homeowner Affordability and Stability Plan will help more homeowners refinance into new, low-interest rates and it provides incentives to mortgage lenders and servicing companies to restructure mortgage balances and renegotiate mortgage rates.

Borrowers Reject Adjustable Rate Mortgage Loans

American homeowners have lost their appetite for once appealing adjustable rate mortgages. A quarterly report from Freddie Mac indicated that 97% of prime borrowers who refinanced adjustable rate mortgages last quarter chose fixed rate mortgage loans. In addition, 99.7% of homeowners who refinanced fixed-rate home loans last quarter chose fixed-rate mortgages again.

The number of homeowners choosing adjustable rate refinancing was significantly lower than the third quarter. “The very low interest rates for fixed-rate loans compared with ARM mortgage rates in the fourth quarter, combined with worries that rates may rise in the future when the economic recession ends, enticed refinancing borrowers to seek the security of long-term fixed-rate mortgages,” said Freddie Mac chief economist Frank Nothaft in a statement. “When borrowers can lock in a rate of 5% or less for 15 years or longer, it’s hard to find a reason not to take it.”

During the fourth quarter, initial interest rates on hybrid adjustable-rate mortgages were close to, or above mortgage interest rates on 15-year and 30-year fixed rate home mortgages. Last week, Freddie Mac reported the average 30 year fixed-rate mortgage had dropped to 5.04 %, down one full percentage point from where thirty-year mortgage loans were a year ago.

Low Mortgage Rates Forecasted

Mortgage interest rates will remain below 5% for the first part of 2009 which could help stabilize home sales and keep a mortgage refinancing trend going, according to a consensus forecast by banking economists. “A surge of home loan refinancing is already under way and lower home prices and interest rates will gradually support an increase in home sales,” said Bruce Kasman, chief economist at JPMorgan Chase.

Mr. Kasman is chairman of the American Bankers Association Economic Advisory Committee, which expects the government’s efforts to stabilize the financial system and stimulate the economy will lead to a recovery in the second half with gross domestic product rising to 3.8% in the 4th quarter of 2009. However, the bank economists see house prices continuing to decline and home loan delinquencies increasing throughout 2009. The home refinancing surge will be “substantial,” predicted Mr. Kasman, noting that a high rate of applications may be rejected and cash out refinance loans will be modest.

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