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May 7th, 2012

Mortgage rates just keep on falling

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Below is an excerpt from HSH.com’s latest Market Trends newsletter, written by Keith Gumbinger, vice president of HSH.com. Sign up and receive the newsletter in your inbox Friday evening.

falling ratesFollowing the softer tone of the economy, mortgage rates eased downward last week to again land at new record lows. After a hopeful late winter and early spring, the economic data began to point to a lower trajectory for growth, and that’s where we find ourselves at the moment.

Troubles in overseas economies continue to show, while inflation has leveled for the moment. These ingredients are the recipe for lower interest rates in general, as investors look for places to stash and park cash away from uncertain stock markets. Once you mix in a Federal Reserve still accumulating long-term Treasuries and mortgages, you’ve got everything you need for rock-bottom mortgage rates.

It would be better if more borrowers could take advantage of them, though.

Mortgage rates: The third record-setting week of 2012

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 jumbos) eased by two basis points (0.02 percent) for the week ending May 4, and at 4.15 percent, now stands at a new record low, the third record-setting week of 2012.

The FRMI’s 15-year companion also shed two basis points (.02 percent), slipping to a new record low of 3.39 percent.

Important to homebuyers and low-equity-stake refinancers, already-low FHA-backed 30-year mortgages dropped by another single basis point to 3.79 percent, a fresh low-water mark, while the overall average for 5/1 Hybrid ARMs was unchanged, holding at an average 2.97 percent for the survey period, its lowest level ever.

Little change in lending standards

The latest Senior Loan Officer survey of lending conditions from the Federal Reserve was released last week. Since the mortgage market is substantially controlled by the underwriting guidelines of Fannie Mae, Freddie Mac and the HUD’s FHA program, it was unsurprising that there was little change in the standards for obtaining a residential mortgage. Over the past three months, demand for loans was up slightly (record low mortgage rates at times will tend to have that effect).

In a special question, the Fed asked lenders to compare their willingness to make a mortgage to borrowers in 2006 and 2012 using similar FICO and LTV standards. In what has been painfully obvious to even a casual observer of the mortgage market, lenders are much less willing to lend now compared to then. The reasons are widespread, but include trouble getting mortgage insurance for borrowers, the GSEs requiring buybacks on failed loans, unclear regulations, weak home prices and more. To a degree, all of these issues rely on the other to be solved, and given the thorny issues involved, it may be some time before that happens.

That’s a shame, since making it somewhat easier to get a mortgage loan would tend to foster demand, firming home prices. If prices start to rise, losses on failed loans would slow, which might allow some leeway on buybacks. Fewer failing loans would see mortgage insurers in better fiscal straits, allowing them to ease rigid rules. If the market starts to function better all around, regulators might be less tempted to make drastic changes, and new regulations might come sooner rather than later, easing the anxiety of over-regulation which has hung over the market for several years now.

Looking forward

A relatively thin set of new data coming out this week probably won’t shine much new light on the economic situation. The stock market had a rough week of it last week, and some additional money was plowed into Treasuries, driving rates down. That probably won’t occur to the same degree this week, and we might even see a little reversal when the dust settles. This leaves us to believe that mortgage rates will move a couple basis points up off of record lows but the time Friday rolls around.

For a longer-range outlook for mortgage rates and the economy, one which will take you up until late June, have a look at our new Two-Month Forecast.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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