Mortgage rates remain quiet before the Fed

Mortgage rates were relatively unchanged this week, but don't let the calm before the storm fool you. When the Federal Reserve wraps up its policy meeting Thursday, the markets will be anything but quiet.

30 year fixed rate mortgage – 3 month trend
30 year fixed rate mortgage – 3 month trend

With or without an announcement for additional monetary stimulus, the Fed will indirectly affect mortgage rates this week. For borrowers who don't like to live on the edge, this may be a good time to lock a rate.

The benchmark 30-year fixed-rate mortgage rose to 3.81 percent from 3.79 percent, according to the national survey of large lenders. The mortgages in this week's survey had an average total of 0.39 discount and origination points. One year ago, the mortgage index stood at 4.32 percent; four weeks ago, it was 3.86 percent.

Weekly national mortgage survey

Results of's Sept. 12, 2012, 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:3.81%3.04%2.75%
Change from last week:+0.02N/C-0.01
Monthly payment:$769.77$1,142.64$673.60
Change from last week:+$1.88N/C-$0.87

The benchmark 15-year fixed-rate mortgage was 3.04 percent, the same as last week. The benchmark 5/1 adjustable-rate mortgage fell to 2.75 percent from 2.76 percent.

Uncertainty ahead

Rumors that the Fed is ready to offer more quantitative easing gained steam in recent days after Federal Reserve Chairman Ben Bernanke said the Fed would provide additional help if needed.

The weak August jobs report, released Sept. 7, was perceived by the market as clear evidence the economy needs more help. The jobs report puts pressure on the Fed to announce another round of bond purchases, or QE3.

Today's mortgage rates reflect an assumption "that QE3 is going to happen," says Bob Walters, chief economist for Quicken Loans. "If it doesn't happen, that could be very interesting."

What would QE3 or no QE3 mean for rates?

In theory, if the Fed announces QE3, rates should drop. That's because as the Fed buys mortgage or Treasury bonds (or both), the yields on those bonds normally fall. Rates tend to follow the direction of bond yields.

But the move could backfire and actually cause mortgage rates to rise.

"When they announced QE2, rates shot up," says John Walsh, president of Total Mortgage Services in Milford, Conn. "That could happen this time as well."

In November 2010, when the Fed started a $600 billion bond-buying program dubbed QE2, the industry expected mortgage rates to fall. Instead, rates spiked more than half a percentage point in weeks. When the Fed concluded QE2 in mid-2011, rates tumbled.

"It won't be enough that QE3 is, or is not, announced," says Dan Green, a loan officer for Waterstone Mortgage in Cincinnati. "It will be how QE3 is announced. If QE3 is announced and it's deemed 'too small' by Wall Street, mortgage rates should rise. A massive QE3 would have the opposite effect -- U.S. mortgage rates would fall."

Refi now or later?

Amid so much uncertainty, the wise move for refinancers who are on the fence is to lock in a rate, mortgage professionals say.

"Don't pick up nickels in front a bulldozer," Walters says. "I've been around long enough, and I have seen interest rates go up a point and a half in two weeks."


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Mitch Strohm

Mortgage rates for Wednesday, August 31

If you're purchasing or refinancing, it's a great time to lock in a rate.If you're purchasing or refinancing, it's a great time to lock in a rate.  ... Read more


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