Purchase loan demand sags, but still up 7 percent from year ago

By Inman News, Thursday, October 25, 2012

Rates on the most popular mortgage loans — those with fixed rates — moved up slightly this week but remained near historic lows, Freddie Mac said in releasing the results of its latest Primary Mortgage Market Survey.

Rates on 30-year fixed-rate mortgage averaged 3.41 percent with an average 0.7 point for the week ending Oct. 25, up from 3.37 percent last week but down from 4.1 percent a year ago. Rates for 30-year fixed-rate loans hit an all-time low in Freddie Mac records dating to 1971 of 3.36 percent during the week ending Oct. 4.

For 15-year fixed-rate loans, rates averaged 2.72 percent with an average 0.6 point, up from 2.66 percent last week but down from 3.38 percent a year ago. Last week’s average for 15-year fixed-rate loans was an all-time low in Freddie Mac records dating to 1991.

Rates on five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) loans averaged 2.75 percent with an average 0.6 point, unchanged from last week but down from 3.08 percent a year ago. Rates on five-year ARM loans hit a low in records dating to 2005 of 2.69 percent during the week ending July 19.

For one-year Treasury-indexed ARM loans, rates averaged 2.59 percent with an average 0.4 point, down from 2.6 percent last week and 2.9 percent a year ago. Rates on one-year ARM loans hit an all-time low in records dating to 1984 of 2.57 percent during the week ending Oct. 4.

The Federal Reserve announced Sept. 13 that it was stepping up its purchases of mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac by $40 billion per month, a move that’s expected to help keep mortgage rates low for an indefinite period.

The Fed’s Open Market Committee issued a statement Wednesday saying it will continue its open-ended MBS purchases amid concerns that economic growth may not be strong enough to generate sustained improvement in labor market, and that “strains in global financial markets continue to pose significant downside risks to the economic outlook.”

The Fed will also continue through the end of the year a program to extend the average maturity of its holdings of Treasury securities, and maintain its existing policy of reinvesting principal payments from its holdings of Fannie Mae and Freddie Mac debt and MBS into more “agency” MBS.

All told, the Fed will boost its holding of longer-term MBS and Treasuries securities by about $85 billion each month through the end of the year, in the hopes of putting downward pressure on longer-term interest rates and supporting mortgage markets.

While interest rates are low, many homebuyers have difficulty qualifying for loans because of strict lending standards.

Ellie Mae Inc., which provides software for lenders, has reported that the average FICO score for mortgages approved in August was 750, with borrowers making down payments averaging 21 percent. FICO scores range from 300 to 850, and nearly eight in 10 consumers have scores below 750.

A weekly survey of lenders conducted by the Mortgage Bankers Association showed demand for purchase mortgages was down a seasonally adjusted 8 percent during the week ending Oct. 19 compared to the week before. Looking back a year, demand for purchase loans was up 7 percent, the MBA said.