Rates drop this week -- or do they?
Mortgage rates have been volatile this year, moving
up and down as rapidly as an oscilloscope. That trend continued
The benchmark 30-year fixed-rate mortgage fell 9 basis
points, to 6.32 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 0.39 discount and origination points. One year ago, the mortgage
index was 6.19 percent; four weeks ago, it was 5.78 percent.
The benchmark 15-year fixed-rate mortgage fell 8 basis points,
to 5.79 percent, and the 30-year fixed jumbo, for loans greater
than $417,000, was unchanged, at 7.43 percent. The benchmark 5/1
adjustable-rate mortgage rose basis points, to 5.72 percent.
This is where volatility enters the picture. The rate on the 30-year
fixed made a startling jump Wednesday. It went up a quarter of a
percentage point or more in the afternoon -- after Bankrate's research
department had gathered the bulk of the day's rate information.
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What caused wide swings?
Had the rate data been collected in the afternoon instead of in
the morning, the benchmark rate would have been up 15 or 20 basis
points, instead of down 9 basis points. Wide, intraday swings in
rates have become almost the norm this year. That causes rate surveys
to quickly become out of date, no matter the methodology.
Wednesday's big jump in mortgage rates served as evidence of a
huge sell-off of mortgage-backed securities. There was no ready
explanation for investors' sudden aversion to mortgage-backed securities.
"There is no reason this should happen," says Dick Lepre,
senior loan consultant with Residential Pacific Mortgage in San
Francisco. "It's neither supported by the fundamentals or the
Grasping at the easiest explanation on the shelf, much of the financial
press attributed the sell-off to the news that bond insurer Ambac
Financial Group had found a way to preserve its AAA credit rating.
But the Ambac announcement was hardly a surprise. Even if the announcement
had come as a shock, a jolt in mortgage rates wouldn't have been
an obvious reaction.
Lepre guesses that bond investors are worried about inflation --
that they believe high commodity prices, along with Federal Reserve
rate cuts, will lead to a spike in consumer prices. But, he acknowledges,
that doesn't explain the big one-day move in mortgage rates.
At Palm Beach Financial Network in Stuart, Fla., mortgage broker
Jim Sahnger looks at a graph and marvels that big, one-day swings
in mortgage rates have become the norm, especially in the last month.
"There's not a week that goes by that I don't get off the phone
20 times, scratching my head, wondering how I'm going to get this
deal done," Sahnger says.
Lending standards crimping deals
Mortgage rates' trampoline act is just one problem he faces. The
bigger challenge comes in the form of the ever-stricter standards
that lenders are imposing. One frustration that he's facing more
and more: Customers are blocked from refinancing because they have
second-lien mortgages, such as home equity loans and home equity
lines of credit.
For a refinance to be approved, the home equity lender has to reaffirm
its second lien position. But some second lienholders are balking,
and that causes refinance deals to fall apart.
Yet another frustration in the weird world of mortgages.