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.
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 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 mortgage 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.”
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 firstpart of 2009 which could hellp 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.
Mortgage Rates Rise, Home Refinancing Applications Decline
Unfortunately, not that many homeowners qualify for the low conventional mortgage rates that dipped below 5% a few weeks back. Even FHA home loan programs have experienced changes that require higher credit scores and more equity. Many rejected borrowers remain in search for mortgage modification plans with loan modification agreements that enable existing mortgages to be renegotiated without actually refinancing the mortgage.
Refinancing applications hit their highest levels in years after mortgage rates plummeted to record lows several weeks back, according to the Mortgage Bankers Association. But now that thirty-year fixed rate mortgages have pushed back above 5 %–to still attractive levels–interest in mortgage refinancing appears to be declining.
The Mortgage Bankers Association released its Weekly Mortgage Applications Survey for the week ending January 23, 2009. The Market Composite Index, a measure of mortgage loan application volume, was 732.1, a decrease of 38.8% on a seasonally adjusted basis from 1195.3 one week earlier…
Mortgage interest rates remain at the lowest point in decades and Investment Advisor Jill Schlesinger spoke to Harry Smith about the right time for home-buying.
Home Prices Fall Again Even with Low Mortgage Rates
The Home Refinancing Index declined 48% to 3373.9 from 6491.8 the previous week and the seasonally adjusted Purchase Index decreased 2.9 % to 294.3 from 303.1 one week earlier…The refinance share of mortgage activity decreased to 72.8% of total applications from 83.3% the previous week…The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.22% from 5.24%, with points decreasing to 1.05% (including the origination fee) for 80% loan-to-value (LTV) ratio loans.
Treasury Down After Bernanke Says Fed May Buy US Debt
Treasury prices declined Tuesday as yields moved higher, with bond traders playing off Federal Reserve chief Ben Bernanke’s comments restating that the U.S. central bank could buy longer-term Treasury’s to keep loan rates low. Last week, mortgage rates dropped below 5% on thirty year mortgage loans and FHA home loans.
More aid to the banking system would be needed to foster an economic recovery, Bernanke also said in a speech he delivered in London. Two-year note yields (UST2YR) rose 4 basis points to 0.79%. A basis point is one one-hundredth of a percent. Ten-year note yields (UST10Y) were little changed at 2.31%.
The timing and strength of any global recovery remain “highly uncertain,” Bernanke said. The Fed has begun a plan to buy billions of dollars in mortgage-backed securities and debt sold by housing agencies including Fannie Mae (FNM) and Freddie Mac (FRE) to lower mortgage rates and spur growth in the housing market.
So far, the program has been successful in bringing down mortgage interest rates by reducing the gap between Treasury’s is a benchmark for many types of home loans, and yields on mortgage or agencies bonds. Bernanke also said it may expand its program to buy asset-backed securities, which pool borrowings such as car loans and credit-card debt. Also Tuesday, a government report showed the U.S. trade deficit in November plunged to $40.4 billion, reflecting weakening demand for imports as the nation’s economic woes deepened
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