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Mortgage Rates Reverse Course

[Jan 23, 2009.]


Rates on fixed-rate mortgages reversed course this week and rose, breaking an 11-week downward trend that sent the 30-year mortgage to record lows, Freddie Mac reported on Thursday.

The 30-year fixed-rate mortgage averaged 5.12% for the week ending Jan. 22, up from last week's 4.96% average, according to Freddie Mac's weekly survey.

According to the latest data from the Mortgage Bankers Association, the volume of mortgage applications filed last week also dropped by a seasonally adjusted 9.8%. The MBA added that requests for refinancing loans represented more than 83 percent of all mortgage applications in the past week

Many are counting on the Federal Reserve's commitment to buy up to $500 billion of mortgage bonds to keep rates low and possibly send them lower. Some experts believe that lower rates will help push prospective home buyers off the fence and help stabilize falling home prices. Many are also counting on homeowners who are able to save money by refinancing to spend those savings, in turn, helping to stimulate the lagging US economy.

“A lot of people aren’t in a position to refinance their mortgages and because of that Fed actions are not going to work miracles,” Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina, said before the report. “Folks are having trouble getting financing. I haven’t seen anything that suggests demand for housing has picked up. If anything, it’s weakened further.”

This recent uptick in rates can be attributed to a sell-off of mortgage-backed securities (MBS) which many attribute to fears about increased spending by the new administration. This increased spending could lead to inflation which leads to higher bond yields. The end result is higher mortgage rates.


About Author:

Chris Rocks is the Regional Director of the National Credit Federation (NCF), a consumer advocacy group that assists small business owners and consumers overcome debt and credit challenges.

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