Mortgage Rates Hit New Low

U.S. mortgage rates dropped to another record low this week, giving a glimmer of hope for the hard-hit housing market even as foreclosure data showed one in every 54 households received at least one filing notice last year.

Interest rates on the 30-year fixed-rate mortgage averaged 4.96 percent for the week ending Jan. 15, down from the previous week's 5.01 percent, its 11th straight weekly decline, according to Freddie Mac.

AP

Low mortgage rates have spurred a surge in home refinancing loans, and refinancing to lower monthly payments should provide a bit of relief to strapped consumers amid rising unemployment and a shrinking economy.

But the precipitous drop in mortgage rates has made only a marginal impact on demand for loans to purchase a home, offering little sign of a recovery from the worst housing downturn since the Great Depression.

"These things take time, so we cannot expect a pick up in demand for home purchasing to happen overnight," said Lawrence White, professor of economics at New York University's Stern School of Business.
"The fact that interest rates have dropped to a record low is an important development since more affordable home financing could help bring buyers back to the market and prevent some of these foreclosures," he said.

U.S. foreclosure activity jumped 81 percent in 2008, suggesting various state laws and private programs to slow the process have been ineffective, RealtyTrac reported on Thursday.

Nearly 3.2 million foreclosure filings on 2.3 million properties were made last year, the Irvine, California-based research firm said. Filings include notice of default, auction sale or bank repossession.

"For those looking to buy a home, the serious question for them is when home prices will stop falling," White said.

"At some point, home prices will either stop falling or have fallen enough to bring buyers to the market and mortgage rates at these levels will certainly help," he said.

Mortgage rates have dropped dramatically ever since the Federal Reserve unveiled a plan last month to buy up to $500 billion of mortgage securities backed by government-sponsored enterprises, Fannie Mae, Freddie Mac, and Ginnie Mae. The program also entails buying up to $100 billion of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

The 30-year fixed-rate mortgage has not been lower since Freddie Mac started the Primary Mortgage Market Survey in 1971.

Other Interest Rates Mixed

The 15-year fixed-rate mortgage averaged 4.65 percent, up from 4.62 percent. One-year adjustable-rate mortgages, or ARMs, fell slightly in the week to an average of 4.89 percent from 4.95 percent last week.

Freddie Mac said the "5/1" ARM, set at a fixed rate for five years and adjustable each following year, averaged 5.25 percent, compared with 5.49 percent a week earlier.

A year ago, 30-year mortgage rates averaged 5.69 percent, 15-year mortgages were at 5.21 percent and the one-year ARM was at 5.26 percent. The 5/1 ARM averaged 5.40 percent. The 5-year ARM has not been lower since the week ending September 8, 2005, when it averaged 5.24 percent.

Lenders charged an average of 0.7 percent in fees and points on 30-year mortgages, up from 0.6 percent the previous week, while they charged an average 0.7 percent in fees and points on 15-year mortgages, unchanged from the previous week.

The 5/1 ARM fees and points were 0.6 percent, down from 0.7 percent the previous week. The one-year ARM fees and points were 0.5 percent, unchanged from the previous week.

Freddie Mac and its larger sibling, Fannie Mae, were placed under government conservatorship in early September.

Freddie Mac is a mortgage finance company chartered by Congress that buys mortgages from lenders and packages them into securities to sell to investors or to hold in its own portfolio.

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