Mortgage rates fall sharply
By Chris Kissell • Bankrate.com

Almost overnight, the once-mighty U.S. economy has morphed into a carnival of wacky sideshows.

Step right up to enter the House of Horrors, where you can watch the Werewolves of Wall Street slash away at your retirement dreams.

Or, perhaps you prefer the Funhouse, where the Clowns on Capitol Hill tap dance around their responsibility for letting mortgage markets spin out of control.

In the giant Hall of Mirrors, nothing is as it seems. But lately, mortgage rates have provided a bit of relief from this unrelenting freak show.

Mortgage rates fell sharply this week.

The benchmark 30-year fixed-rate mortgage fell 22 basis points, to 6.19 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 6.5 percent; four weeks ago, it was 6.15 percent. The benchmark 15-year fixed-rate mortgage fell 19 basis points, to 5.95 percent. The benchmark 5/1 adjustable-rate mortgage plunged 28 basis points, to 6.21 percent.

Weekly national mortgage survey

Results of Bankrate.com's Oct. 8, 2008, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:

While mortgage rates continue to fluctuate, they remain well off their midsummer highs and are considerably lower than they were one year ago.

People looking for new mortgages have noticed. "You're seeing a ton of activity right now," says Bob Walters, chief economist at Quicken Loans.

For much of this year, mortgage rates have been extremely volatile. Earlier this spring, it was not uncommon to hear stories of mortgage shoppers who received great quotes, only to discover the rates were no longer available a couple of hours later.

Walters says that type of volatility continues. "They're still whipping around," he says, referring to mortgage rates. "They're just whipping around to the good side lately."

As a result, mortgage activity has turned positive after two weeks of falling drastically. For the week ending Oct. 3, mortgage activity ticked up a seasonally adjusted 2.2 percent, according to the Mortgage Bankers Association.

Encouragingly, applications for new purchases grew by 3.2 percent, eclipsing the 0.9 percent increase in refinancing.

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Lower rates driving activity
Walters believes the growing economic turmoil may play a small part in the increased mortgage activity. For example, some homeowners may be rushing to refinance before the economy goes further south. But he believes most of the activity is the result of consumers taking advantage of an honest-to-goodness increase in consumer value.

"Once you get into that high 5 (percent), low 6 percent range for a 30-year fixed, that's pretty powerful stuff," Walters says.

Even in good times, people always rush to take advantage of lower rates, he says. "Any time people can save a buck, they want to save a buck," Walters says. "We human beings like to not pay more money than we have to."

While lower mortgage rates offer a reason to celebrate, there is no guarantee the trend will continue. Rates are likely to continue to fluctuate "as the world moves money around in large gobs," Walters says.

For that reason, mortgage shoppers should get used to having to endure the ups and downs of one more carnival attraction. "Volatility is through the roof," Walters says. "Until this begins to calm down and people have more certainty, we're in for a roller coaster."