Mortgage rates stall on Fed skittishness
By Holden Lewis • Bankrate.com

Mortgage rates barely budged this week because bond traders were locked in a form of suspended animation, waiting to hear what the Federal Reserve would say about the economy.

For the first time since March 22, the benchmark 30-year fixed-rate mortgage did not rise. Instead, it held steady at 6.67 percent, according to the Bankrate.com national survey of large lenders. The mortgages in this week's survey had an average total of 0.35 discount and origination points. One year ago the mortgage index was 5.84 percent; four weeks ago, it was 6.56 percent.

The 15-year fixed-rate mortgage inched up 1 basis point to 6.30 percent. The 5/1 adjustable-rate mortgage rose 3 basis points to 6.35 percent. A basis point is one-hundredth of 1 percentage point.

Treasuries hold steady
Mortgage rates tend to move up and down in concert with yields on U.S. Treasuries. In the last week or so, Treasury bond yields remained fairly steady. They held flat because bond traders didn't want to commit themselves before they knew which way the Fed's rate-setting committee was leaning. Wednesday's short-term rate hike of a quarter point was a given, but what would the Fed do at the next meeting at the end of June? The bond market was waiting for a hint as to whether the Fed was inclined to raise rates again in June or pause after 16 straight increases. The Fed announcement didn't clarify things: Chairman Ben Bernanke and Co. left their options open.

The Fed's decision Wednesday afternoon doubtless will affect mortgage rates, but is not reflected in this week's Bankrate.com national survey. The poll of large lenders is conducted every Wednesday, starting in the morning and continuing until early afternoon. Most of this week's data were collected before the Fed announced its decision at 2:20 p.m. Eastern.

Expect uptick in refis
No matter what happens as a result of the Fed's action -- whether mortgage rates go up or down -- about 40 percent of mortgage activity will come from homeowners who are refinancing their mortgages, according to Frank Nothaft, chief economist for mortgage giant Freddie Mac.

Rates, both short-term and long-term, are higher now than they were at the beginning of 2006 or a year ago, but people continue to refinance for a couple of reasons. First, they refinance for more than their current balance and take out the difference in cash. These transactions are called cash-out refis, and people extracted $60 billion in equity that way in the first three months of this year, Freddie Mac estimates.

After cash-out refis, people typically use the extracted equity to pay off credit cards and auto loans, or to renovate their homes.

There's another pool of potential cash-out refi customers: Homeowners who have adjustable-rate mortgages. Some of those loans will have payment adjustments this year -- about $400 billion worth of mortgages, according to Freddie Mac's estimates.

Right now, though, few people are refinancing. Just 33.8 percent of mortgage applications were for refinances, according to the Mortgage Bankers Association. That's the lowest share in 23 months.