Mortgage rates plunge
By Holden Lewis • Bankrate.com

Mortgage rates continued riding a seesaw this week, plunging one-third of a percentage point compared with the week before.

The benchmark 30-year fixed-rate mortgage fell 33 basis points, to 6.44 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 6.34 percent; four weeks ago, it was 6.2 percent.

The benchmark 15-year fixed-rate mortgage fell 25 basis points, to 6.21 percent. The benchmark 5/1 adjustable-rate mortgage fell 21 basis points, to 6.46 percent.

Weekly national mortgage survey

Results of Bankrate.com's Nov. 5, 2008, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:

Bankrate's survey is conducted weekly, each Wednesday -- and for six Wednesdays in a row, the benchmark 30-year fixed has zigged or zagged sharply in a direction opposite to the direction of a week before. This week the 30-year fixed fell 33 basis points compared to a week ago, but in last week's survey, it had risen 45 basis points compared with a week before.

Cause of volatility?
This week's rate drop didn't appear to be related to the presidential election. In fact, no one is quite sure why mortgage rates have been so volatile lately. There has been speculation that the Treasury has been responsible for at least one sharp rate drop by buying lots of mortgage-backed securities. That would have the effect of driving up bond prices, which would cause yields to drop -- and mortgage rates would follow.

Brian Koss, managing partner with Mortgage Network Inc., a mortgage bank based in Westford, Mass., traces the rate drop to something more prosaic than the Treasury putting its thumb on the scales. He hears that mortgage servicers are buying loans, thus driving up prices and ... you get the picture.

He says servicers are buying mortgages because they are steadily running out of loans to manage, in a process called runoff. Mortgages are being paid off when houses are sold, either willingly or in foreclosure. Because servicers are in the business of servicing mortgages, they don't really have the option of allowing all their loans to run off. If they did that, they would be out of business. So Koss' theory is that servicers are buying loans, and indirectly pushing rates down.

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Don't apply, won't be turned down
Meanwhile, few new loans are being originated. The Mortgage Bankers Association reported that, in the week ending Oct. 31, loan applications fell 23 percent compared with the week before, and were down 43 percent compared with the same week a year before.

That decline probably was a result of that week's rise in rates. But lenders also worry that borrowers are scared away from applying for mortgages, fearing that they will be turned down. "Loans can be done," Koss says, but adds, "If you have anything unique about yourself, it's going to be difficult." This is the case with loan applicants who are self-employed or collect commissions.