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| Long-term mortgage
rates hit 4-year high |
| By Holden
Lewis • Bankrate.com |
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Long-term mortgage rates climbed strongly this week
to their highest level in more than four years.
The benchmark 30-year fixed-rate mortgage rose 12 basis points to
6.83 percent, according to the Bankrate.com national survey of large
lenders. A basis point is one-hundredth of 1 percentage point. The
mortgages in this week's survey had an average total of 0.33 discount
and origination points. One year ago, the mortgage index was 5.66
percent; four weeks ago, it was 6.69 percent.
The 15-year fixed-rate mortgage rose 9 basis points to 6.45 percent.
The 5/1 adjustable-rate mortgage skyrocketed 18 basis points to
6.49 percent.
The benchmark 30-year fixed hasn't been this high since May 16,
2002, when it stood at 6.91 percent.
 |
Weekly national mortgage survey |
|
| This week's rate: |
6.83% |
6.45% |
6.49% |
| Change from last week: |
+0.12% |
+0.09% |
+0.18% |
| Monthly payment: |
$1,078.98 |
$1,432.80 |
$1,041.83 |
| Change from last week: |
+$13.18 |
+$8.14 |
+$19.45 |
Prodded by the Fed
This week's sharp rise marked the end of a watch 'n' wait period
when mortgage markets seemed to be passing time until next week's
Federal Reserve meeting. The benchmark 30-year rate had remained
bottled up between 6.67 percent and 6.73 percent from May 3 to June
14. That sessile period ended this week, when the mortgage market
concluded that the Fed not only will raise short-term rates next
week, but might boost again at its next scheduled meeting, Aug.
8.
When Fed Governor Randall Kroszner, a member of the
central bank's rate-setting committee, delivers a speech titled
"Why are yield curves so flat and long rates so low globally?"
in New York, then repeats the same speech for a different audience
the next day, no one can fail to get the hint.
Kroszner's speech, delivered June 15 to the Bankers' Association
for Finance and Trade and June 16 to the Institute of International
Bankers, speculated about the "conundrum" of low long-term
interest rates. His conclusion, to oversimplify, is this: In a time
of technological change and globalization, countries can't afford
"pursuing a high-inflation policy."
Not exactly a surprising conclusion, but another
Fed governor and member of the rate-setting committee, Donald Kohn,
spoke June 16 on a similar theme at an economic conference in Massachusetts.
He cautioned his listeners not to doubt the Fed's dedication to
fighting inflation. If the Fed lets up, he says, "the resulting
decline in the dollar would tend to add to inflationary pressures."
The Fed is speaking loudly and carrying a big stick.
A warning about risky loans
In addition to making bellicose statements about fighting inflation,
the central bank and other regulators have been pressing banks to
take more care when they underwrite mortgages. Regulators are especially
concerned about interest-only mortgages and home loans to borrowers
who make extremely low down payments or who don't document their
income or assets.
Mitch Ohlbaum, president of Legend Mortgage in Los Angeles, believes
the new mortgage-underwriting guidelines, combined with uncertainty
over how much higher the Fed will raise rates, is driving mortgage
rates up right now. He doesn't expect it to last. "I think
once the Fed says, 'We're done raising,' rates will drop,"
he says.
His customers seem to think rates will continue to
rise. They're grabbing the lowest rate possible for the long haul.
"People are more willing to pay points in order to buy the
rate down, where in the past, they wanted to get a no-points loan
because rates were so good," he says, adding that borrowers
today are getting the lowest rate possible so they can avoid refinancing
in the future. "They're saying, 'I will stick with this loan
and I'm not going through this again."
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