Mortgage rates bounced this week, after the release of an employment report that wasn't as awful as expected.
The benchmark 30-year fixed-rate mortgage rose 5 basis points this week, to 4.58 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 0.37 discount and origination points. One year ago, the mortgage index was 5.4 percent; four weeks ago, it was 4.57 percent.
The benchmark 15-year fixed-rate mortgage rose 1 basis point, to 4.06 percent. The benchmark 5/1 adjustable-rate mortgage rose 5 basis points, to 3.91 percent.
Rates jumped Friday, after the Labor Department released the jobs report for August. It showed the economy shed 54,000 jobs in August, and the unemployment rate ticked up to 9.6 percent.
A net loss of jobs is bad, but investors spied some semi-hopeful news in the numbers. Some 114,000 of those disappeared jobs belonged to temporary Census workers. Excluding those expired temporary positions, the economy added 60,000 jobs.
Weekly national mortgage survey
Results of Bankrate.com's Sept. 8, 2010 weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
The not-so-terrible employment report was followed by an abrupt rise in bond yields, and mortgage rates followed. Bond yields fell modestly Tuesday and Wednesday, as if Friday's jump in bond yields was an overreaction.
Borrower don't budgeEven with this week's rise, mortgage rates are extremely low by historical standards. But relatively few people are taking advantage of them.
"Purchase applications increased last week, reaching the highest level since the end of May," says Michael Fratantoni, the Mortgage Bankers Association's vice president of research and economics. "However, purchase activity remains well below levels seen prior to the expiration of the homebuyer tax credit, and is almost 40 percent below the level recorded one year ago."
More than eight in 10 mortgage applications are from homeowners who want to refinance. David Adamo, CEO of Luxury Mortgage in Stamford, Conn., says: "I think the story here is less the high percentage of refis and more the low percentage of purchases. It's indicating that potential homebuyers are in a pause mode, pending some sort of visibility on what's happening with jobs. A lot of homebuyers are apprehensive about buying when they're concerned about their own job stability."
Currently, a lot of refinance applications are rejected -- either because the borrower's credit isn't good enough or because the home's appraised value comes in too low. To avoid mortgage insurance, the loan-to-value ratio must be below 80 percent. For example, if a homeowner wants to refinance a loan with an outstanding balance of $80,000, the house needs to be appraised for at least $100,000. All too often, low appraisals stymie homeowners.
"A homeowner might find their home is appraising for much less than they thought, and that could be because there were some recent REO sales in the neighborhood," Adamo says, using the industry term for foreclosed properties. (REO means "real estate owned" by lenders after foreclosure.)
"Those REO sales are what's driving the low value, or some stressed sellers had to sell at a reduced price."
Few optionsWhat can a homeowner do in this situation? There are few options. In most cases, there is no appeal process for low appraisals. Adamo counsels waiting patiently for some homes in the neighborhood to sell at normal prices.
"My recommendation there is to keep an eye on the market, and when some normal sales start to hit, use that as the trigger point to reapply," Adamo says.
Jeff Lazerson, president of MortgageGrader.com, in Laguna Niguel, Calif., says borrowers have another option. But it requires paying a few hundred dollars for another appraisal -- money that could go to waste if that appraisal goes south, too.
"Basically you either have to walk away or write another check for another appraisal, either with another lender -- if it's through a mortgage broker -- or go to another lender if it's a direct lender," Lazerson says.
"It's an awful system -- awful."