Mortgages skid, even as jobs find traction

Mortgage rates slipped this week as continued worries over the global economy trump the recent bullish report on U.S. jobs. A new program by Fannie Mae and Freddie Mac may also affect rates for first-time homebuyers.

30 year fixed rate mortgage – 3 month trend
  • The benchmark 30-year fixed-rate mortgage fell to 4.03 percent from 4.07 percent last week, according to the national survey of large lenders. One year ago, that rate was 4.55 percent. Four weeks ago, it was 4.13 percent. The mortgages in this week's survey had an average total of 0.28 discount and origination points.
  • Over the past 52 weeks, the 30-year fixed has averaged 4.34 percent. This week's rate is 0.31 percentage points lower than the 52-week average. This is the fourth week in a row that the benchmark rate on the 30-year fixed has gone down.

  • The benchmark 15-year fixed-rate mortgage fell to 3.28 percent from 3.29 percent.
  • The benchmark 5/1 adjustable-rate mortgage rose to 3.26 percent from 3.2 percent.
  • The benchmark 30-year fixed-rate jumbo was unchanged, at 4.12 percent.

Weekly national mortgage survey

Results of's Dec. 10, 2014, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
30-year fixed15-year fixed5-year ARM
This week's rate:
Change from last week:-0.04-0.01+0.06
Monthly payment:$790.59$1,161.81$719
Change from last week:-$3.82-$0.80+$5.43

"All of this is being driven by global weakness," says Brian Rehling, chief fixed income strategist for Wells Fargo Advisors. "The world economy situation is pretty challenging. It's pushing energy prices down. It's keeping rates low."

What's wrong with the rest of the world?

The Organization of Petroleum Exporting Countries, better known as OPEC, reduced its expectations for oil demand in 2015 to the lowest level in 12 years because of increasing U.S. shale supplies and reduced estimates for global consumption. Oil demand is seen as a proxy for economic growth.

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On Tuesday, China reported that its inflation rate hit a five-year low in November, punctuating fears of deflation and sharp deceleration in one of the world's largest economies. Further spooking investors this week was the news of snap presidential elections in Greece, which, depending on the outcome, could destabilize the eurozone.

Investors seek U.S. bonds as a safe asset when the global economy is in question. That keeps a lid on yields on the 10-year Treasury, which mortgage rates tend to track.

American optimism

"You've got the one bright spot, which is the U.S. economy, which questions why rates are staying so low," says Joel Naroff, president of Naroff Economic Advisors. "It's really clear that until the Fed tells everyone when it thinks rates should go up, rates won't go up. They will just bounce around."

The Fed and interest rates

The Federal Reserve's monetary policymaking committee meets Dec. 16-17 for the last time this year. Behind closed doors, it will consider the future of the federal funds rate, a benchmark rate for business and consumer loans, including mortgages, based on the state of the U.S. economy.

So far, inflation has stayed in check, despite the potential economic shot in the arm resulting from the drop in oil prices. Higher inflation is one reason the central bank may raise rates. The employment picture is also healthy, according to the Dec. 5 government report that showed employers added 321,000 jobs in November -- many of them temporary or part time, but still higher than expected. Average hourly earnings also increased by 0.4 percent, the biggest gain since June 2013.

"The Fed is in a conundrum here because the U.S. is doing better than everyone else," Rehling says. "But the question is: Will the global weakness eventually impact us here?"

More homeowners refi

The decline in rates may have helped push some borrowers to refinance their home loans. The volume of refinance applications jumped 13 percent last week from the previous one, according to the Mortgage Bankers Association. Purchase applications also ticked up 1 percent and the overall volume increased 7.3 percent. The group also noted this week in a separate report that mortgage standards loosened in November.

Fannie and Freddie intervene

Despite the low rates and easier requirements, there are still fewer first-time homebuyers than the historic average in today's market. In October, first-time homebuyers made up 29 percent of all purchases, while the long-term average is 40 percent, according to the National Association of Realtors.

As a result, Fannie Mae and Freddie Mac this week introduced new programs that allow borrowers to put only 3 percent down for a mortgage. Previously, they required minimum down payments of 5 percent. The programs may attract first-time homebuyers, many of whom find the down payment requirement a challenging hurdle.

Awaiting impact

Rates on loans under the programs are still up in the air as lenders consider adopting the lower down payments, says John Stearns, a senior mortgage banker with American Fidelity Mortgage Services in Wisconsin. Fannie's program launches Dec. 13, while Freddie's doesn't start until March.

"It may take a week or so for lenders to get going on this, if lenders do it," says Stearns, who wonders if the program will be cheaper than one backed by the Federal Housing Administration, which requires a 3.5 percent down payment. "But as I say, 'something is better than nothing.'"


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