Mortgage rates fall again, refis rise
By Holden Lewis • Bankrate.com

Mortgage rates fell for the sixth week in a row, to their lowest level in months, and homeowners continued to apply for refinances.

The benchmark 30-year fixed-rate mortgage fell 12 basis points, to 5.8 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 0.35 discount and origination points. One year ago, the mortgage index was 6.17 percent; four weeks ago, it was 6.39 percent.

The benchmark 15-year fixed-rate mortgage fell 16 basis points, to 5.51 percent. The benchmark 5/1 adjustable-rate mortgage rose 3 basis points, to 6.17 percent.

In Bankrate's survey, the 30-year fixed was lower than 5.8 percent for three weeks in January and February. In the Feb. 6 survey, the benchmark 30-year rate was 5.78 percent.

Mortgage applications either went up or went down last week, depending on how you count. The Mortgage Bankers Association says the raw number of applications rise about 33 percent last week compared with the week before. But that week before was short, because of the Thanksgiving holiday. When the MBA adjusts to account for the shortened week, applications were down 7.1 percent last week.

Weekly national mortgage survey

Results of Bankrate.com's Dec. 10, 2008, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:

"The recent rate drop was a huge incentive for consumers to refinance into fixed-rate loans or enter the market to purchase a home," says Bob Walters, chief economist for Quicken Loans. "As long as rates remain in this range, it's likely that strong mortgage activity will continue, as consumers take advantage of a holiday gift that comes in the form of lower or more secure mortgage payments."

It certainly looks like borrowers are looking for what Walters calls security and what consumers might call certainty. Just 1.1 percent of applicants were asking for an adjustable-rate mortgage last week. Homeowners with adjustable mortgages are refinancing into fixed-rate loans if they can, just to gain the peace of mind that comes from knowing that one's mortgage rate can't go up.

"It's like a mini refi boom," says Mitch Ohlbaum, president of Legend Mortgage Corp. in Los Angeles.

ARMs and jumbos
Ohlbaum does business in one of the country's most expensive housing markets, and that means he gets more ARM applications than the national average. These days, almost all conforming mortgages are fixed-rate loans, and almost all new jumbo mortgages are adjustables.

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The definition of a jumbo loan varies by county, but for mortgages closing in 2009, anything above $625,500 will be a jumbo. (Although the jumbo limit is higher in Alaska and Hawaii.)

At this point in the evolution of the mortgage business, ARM rates for conforming loans are higher than fixed rates, and fixed rates for jumbo loans are higher than ARM rates.

That's not the only difference between conforming and jumbo mortgages. Conforming mortgages require down payments or equity of 20 percent or sometimes less. But jumbo mortgages generally require equity of at least 30 percent. What if someone wants to refi a jumbo with less than 30 percent equity? "Goodbye, and thanks for playing," is Ohlbaum's response.

Loan officers and brokers hope for less restrictive rules on jumbo loans next year. In the meantime, most of the refi action belongs to fixed-rate, conforming mortgages.