Mortgage rates edge lower

Mortgage rates were almost flat this week, falling just slightly, despite a declaration by the chairman of the Fed that the recession is probably over.

The benchmark 30-year fixed-rate mortgage fell 2 basis points, to 5.38 percent, according to the 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 0.32 discount and origination points. One year ago, the mortgage index was 6.16 percent; four weeks ago, it was 5.52 percent.

The benchmark 15-year fixed-rate mortgage fell 3 basis points, to 4.72 percent. The benchmark 5/1 adjustable-rate mortgage was unchanged, at 4.89 percent.

Weekly national mortgage survey
Results of Sept. 16, 2009, 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:5.38%4.72%4.89%
Change from last week:-0.02-0.03N/C
Monthly payment:$927.56$1,298.80$926.53
Change from last week:-$2.06-$2.55N/C

A lot of factors influence mortgage rates. One of the most important factors is the economic outlook. During recessions, rates tend to stay low because inflation is minimal and there's not much demand for credit. Interest rates tend to rise when the economy heats up because prices climb and there's more demand for credit.

While answering questions at a forum Tuesday at the Brookings Institution, Fed Chairman Ben Bernanke said: "From a technical perspective, the recession is very likely over at this point."

Prominent economists and bankers have been talking about an imminent recovery for months, so Bernanke's sorta wishy-washy pronouncement was a confirmation of market sentiment rather than being a trendsetter.

Market participants seem to be slightly optimistic that a recovery will come soon, but they're not wildly optimistic. That sentiment keeps rates from rising rapidly. Bernanke added: "It's still going to feel like a very weak economy for some time. The general view of most forecasters is that the pace of growth in 2010 will be moderate -- less than you might expect, given the depth of the recession."

Efforts to aid refinance

Early this year, the Fed began buying mortgage-backed securities in a successful bid to bring rates down. By the time the rate-lowering campaign ends early next year, the Fed plans to have bought more than a trillion dollars' worth of mortgage-backed securities and debt from Fannie Mae and Freddie Mac.

On top of that, the federal government instituted the Home Affordable Refinance Plan to make it easier for homeowners to refinance when they owe about what the house is worth or even a little more than the house is worth. First American CoreLogic, a prominent real estate data analytics company, says consumers will save billions of dollars because of these federal efforts to cut mortgage rates and encourage refinancing.

When homeowners refinance and end up with lower monthly house payments, "the resultant reduction in monthly debt burdens for the consumer is a fiscal stimulus benefit that accrues to the overall economy," CoreLogic's chief economist, Mark Fleming, writes.

His study estimates that, from January to June, 1.8 million homeowners refinanced. Half of these refinancers lowered their monthly payments by more than $120. All together, they ended up saving a total of $191 million a month, or $2.3 billion a year, because of lower monthly payments.


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