Another Dramatic Downturn in Mortgage Rates

Even before the Federal Reserve's half point rate cut on Tuesday Freddie Mac's Primary Mortgage Market Survey showed another dramatic downturn in both long and short term interest rates for conventional mortgages.

The Federal Funds, the rate impacted by the Federal Reserve's action on Tuesday actually has no direct relation to Treasury rates which tend to determine mortgage interest. Still there is a synchronicity between the two and it is likely that interest rates will come down further next week and, given the mid-week dates of the Freddie Mac and Mortgage Bankers Association Survey, probably the week after that.

According to Freddie Mac, the 30-year fixed-rate mortgage (FRM) averaged 6.31 percent with an average of 0.5 point for the previous week. This was 15 basis points lower than the average for the previous week when fees and points were also an average of 0.5 point. This is the lowest rate since the week ended May 17 when the average was 6.21 with 0.04 point. One year ago the 30-year averaged 6.43 percent.

The 15-year FRM carried an average interest rate of 5.97 percent with 0.4 point, down from 6.15 percent with 0.5 point during the week ended September 6. This is, again, the lowest rate since May 17 when the 15-year averaged 5.92 percent. One year ago the average was 6.11 percent.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) had an average contract interest rate of 6.27 percent with 0.6 point. After the recent sudden spike in short term rates the average last week was 6.32 percent also with 0.6 point. One year ago the rate was 6.10 percent.

One-year Treasury-indexed ARMS were down 12 basis points from the 5.74 percent average a week ago. Fees and points, however, jumped from 0.6 to 0.8 for this product.

"Interest rates on prime conforming loans fell across the board in the past week, with rates on 30-year fixed mortgages averaging 0.15 percentage points below the previous week's level", said Frank Nothaft, Freddie Mac vice president and chief economist. "The drop in mortgage rates may give some relief to borrowers who are looking to refinance or purchase a home.

"As a matter of fact, all the mortgage products in Freddie Mac's survey this week were lower than they were at the same time last year."
The Mortgage Bankers Association had less good news for borrowers from its Weekly Mortgage Applications Survey for the week ended September 14.

The MBA reported that all rates were up even if only slightly for the week. The 30-year FRM, for example, increased to 6.29 percent from 6.25 percent with points including the origination fee going from 1.0 to 1.02.

15-year FRMs had an average contract interest rate of 5.99 percent compared to 5.90 percent the previous week with fees and points increasing from 1.03 to 1.09.

The interest rate for one-year ARMS increased 5 basis points to 6.39 percent with points nudging up from 0.93 to 0.95.

Mortgage activity was up 2.4 percent on a seasonally adjusted basis from the previous week which was shortened by the Labor Day Holiday. However, on an unadjusted basis it rose 25.6 percent and was up 12.8 percent compared to the same week in 2006.

Refinances as a share of total mortgage activity increased from 42.1 percent to 43.5 percent while the ARM share of mortgage applications dropped once again from 13.2 percent to 12.6 percent.