Mortgage rates falling on eve of HARP 2.0 detailsby Keith Gumbinger
Mortgage rates continued to fall last week as uneasiness in foreign markets led investors back to U.S. Treasuries. As fixed mortgage rates follow Treasuries, they found some more space to decline, and are once again within a stone’s throw of record lows.
According to HSH.com’s broad-market mortgage tracker—our weekly Fixed-Rate Mortgage Indicator (FRMI), the overall average rate for 30-year fixed-rate mortgages (conforming, non-conforming and jumbo) eased by two basis points (0.02 percent) from the week prior, slipping to an average 4.34 percent. The series low to date is 4.32 percent on October 7.
The FRMI’s 15-year companion closed the week with a one basis point decline to 3.65 percent. Important to homebuyers and low-equity-stake refinancers, 30-year FHA-backed mortgages actually rose by a one one-hundredth of a percentage point to land at 3.94 percent, while the overall average for 5/1 Hybrid ARMs dropped by two basis points to 3.09 percent.
The Fed is helping to keep rates stable
Economic ramifications from the external events–like those happening in Greece and Italy–are one of the reasons the Federal Reserve embarked on Operation Twist better than a month ago. Coupled with a new MBS money-recycling program, the effect so far seems to be keeping interest rates fairly stable amid what might have been wider swings. In the face of gently improving economic data in the U.S., mortgage rates have settled back after a minor upward run, and continue to provide important supports to beleaguered homeowners and homebuyers alike.
Low mortgage rates key to HARP 2.0
Keeping low rates in play is essential to homeowners waiting for their chance to refinance. This week, technical details of the expanded HARP program are due to be released, giving us a greater sense of the kind of participation we can expect on the part of lenders and servicers; in turn, this will strongly influence how many borrowers will engage the program. When it does begin–and lenders are expected to be able to start accepting certain applications on or about December 1–it is crucial that there are early successes to report when things get underway, as bad publicity would discourage many worthy borrowers from attempting to navigate the program. We’ll have the expanded program’s details posted on HSH.com when they become available.
Will underwriting standards get any better?
The relaxation of underwriting rules to get more homeowners into a more stable budget position is good on both an individual and broad economic basis. Additional refinancing means that many billions of dollars may potentially be freed from monthly mortgage commitments and spread around the economy, boosting growth.
However, these specialized programs, like HARP 2.0, are limited in scope and do little to help the broader homebuying and refinancing audience, who continue to find firm underwriting standards and loan level price adjustment which drive up costs (and rates). A case could be made that if lower costs and fewer restrictions are good for selected borrowers that they should also be good for larger classes, too. For the moment, though, broad loosening of the rules is unlikely, since “riskier” loans might create more losses for the GSEs.
Will mortgage rates keep falling?
There’s no reason to expect that any of the economic reports out this week will change the interest rate picture to any great degree, and most of the focus this fall has been on the mess in Greece, Italy, Spain and thereabouts. A wobble of a couple of basis points in either direction is equally likely, but no matter, since mortgage rates will hang around these levels and just above record lows, regardless.