Mortgage rates fall after weeks of risingby Keith Gumbinger
The brief rise in mortgage rates has leveled off, leaving us at about five-week highs. The economic news out of late continues to feature a mixed-to-brighter picture, and that will make it difficult for mortgage rates to fall by any significant amount.
There are also some new rumors that the Fed may embark on a grander plan to support mortgage markets, if needed, and there is a new push afoot to re-increase the conforming loan limits in high-cost markets.
Leave it alone
If we are starting to see even a mildly improving economy, has anyone considered the option of just leaving things alone for a while?
Constant change—even that which may have some benefits—also has drawbacks; fits and starts for programs and initiatives make it very hard to know where actual market baselines lie, and to evaluate the effectiveness of previous programs.
Mortgage rates fell last week
HSH.com’s broad-market mortgage tracker—our weekly Fixed-Rate Mortgage Indicator (FRMI)—found that the overall average rate for 30-year fixed-rate mortgages (conforming, non-conforming and jumbo mortgages) decreased by four basis points (0.04 percent) from last week, settling back to mid-September levels at an average 4.42 percent.
The FRMI’s 15-year companion followed the 30-year FRM downward, closing the week with a five basis point fall to 3.71 percent.
Important to homebuyers and low-equity-stake refinancers, 30-year FHA-backed mortgages fell back to an even 4 percent, easing by three hundredths of a percentage point.
The overall average for 5/1 Hybrid ARMs managed a week-to-week drop of five basis points to land at 3.15 percent.
Messing with conforming loan limits
At least part of the troubles we face today comes from uncertainty, and making continual changes to the boundaries and structures of the market simply worsens this. How can anyone plan for the future when new interventions can happen at any time?
If a lender, sensing opportunity, spent much of the spring and summer planning a strategy to get back into the jumbo mortgage market, should we simply throw away those efforts—or blame them when they can’t be bothered to jump back in to the market when the next expiration date comes? Before we permanently nationalize mortgages up to $729,750 can we at least see if the private market responds and what the effects on these markets might be?
The Fed’s function in mortgages
If the Fed wants to act as a backstop for a market which may not function, that’s one thing. However, if the Fed was to get back into the mortgage game in a larger way, we’d hope that it was only to foster a program for current but underwater homeowners to refinance (at least for a start).
The banks aren’t much interested in doing so (and with good reasons) and there is no ready market for the mortgage paper such refinances will produce. While we’d still prefer our own Value Gap Refinance idea (developed over a year ago), the Fed’s intervention here might kick start the economy, obviating the need for any new or novel approaches for monetary policy.
What’s really plaguing the market
Mortgage interest rates are a part of the solution to what ails us, but it would be a stretch to say they have been the problem for some time now. Access to those low rates via underwriting roadblocks, add-ons, overlays and more are today’s more difficult issues, and lenders and investors are rightfully reluctant to expose themselves to more losses, future loan buybacks and other troubles.
Equity markets have had a good time of it since the Fed’s recent decision, and have now put in three weeks of gains. That alone is putting pressure on mortgage rates and interest rates in general, and barring a selloff, we should hang around present levels for this week.
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