Mortgage rates highest since March
By Holden Lewis • Bankrate.com

Mortgage rates rose this week, to their highest level since March.

The benchmark 30-year fixed-rate mortgage rose 6 basis points, to 6.26 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 0.4 discount and origination points. One year ago, the mortgage index was 6.61 percent; four weeks ago, it was 6.13 percent.

The benchmark 15-year fixed-rate mortgage rose 4 basis points, to 5.84 percent, and the 30-year fixed jumbo rose 9 basis points, to 7.47 percent. Adjustable-rate mortgages, or ARMs, went in the other direction. The benchmark 5/1 ARM fell 6 basis points, to 5.8 percent, and the 1-year ARM fell 8 basis points, to 6.14 percent.

The 30-year fixed hasn't been this high since the March 12 survey, when it stood at 6.39 percent. A week later, it plunged below 6 percent, and then gradually rose to where it is today.

Weekly national mortgage survey

Results of Bankrate.com's June 4, 2008, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:

Bernanke backlash
This week's rise seems to have been in reaction to a speech made Tuesday by Ben Bernanke, chairman of the Federal Reserve. Speaking via satellite to a meeting of the International Monetary Conference, Bernanke said that inflation has remained high in the United States because of sharp increases in commodity prices.

That was standard language for a Fed chairman. Then Bernanke raised an issue that Fed chairmen typically steer away from: the value of the dollar in foreign exchange markets.

Partly because of low interest rates, the value of the dollar has fallen in recent years. When the dollar is worth less internationally, it takes more dollars to buy things from other countries. Thus, imports cost more. Because so much of what we buy is imported, overall consumer prices rise. In this way, a weaker dollar feeds domestic inflation, a development that Bernanke called "unwelcome."

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"In collaboration with our colleagues at the Treasury, we continue to carefully monitor developments in foreign exchange markets," Bernanke said, and later added, "We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations and will continue to formulate policy to guard against risks to both parts of our dual mandate" to foster employment and price stability.

End of cuts?
The speech sent the message that the Fed and Treasury are becoming serious about protecting the dollar. Because low interest rates tend to weaken the dollar's value compared with other currencies, one way of protecting the dollar would be for the Fed to cease cutting short-term rates.

The Fed has led most investors to believe that the Fed has ended the aggressive rate-cut campaign it started in September. From that month until April, it reduced the target federal funds rate to 2 percent from 4.75 percent. Bernanke's words about the dollar strengthened the belief that the Fed won't cut rates again, and that seems to have put a floor under mortgage rates.