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Another low for mortgage rates is likely to be set this week

By Holden Lewis · Bankrate.com
Wednesday, July 7, 2010
Posted: 10 am ET

For the fourth week in a row, we are going to set a record for the lowest rate in the nearly 25-year history of Bankrate's weekly mortgage survey.

Last week the 30-year fixed averaged 4.75 percent in Bankrate's survey. When the survey is conducted today, I expect it to fall to around 4.66 percent.

Here's the wacky thing: Rates should be even lower. The yields paid on mortgage bonds are falling faster than the rates that consumers pay. Think of the last time that crude oil prices fell dramatically, while the price of gasoline at the pump barely went down at all. That's sort of what's happening to mortgage rates.

If the market were working as it was a month ago, the 30-year fixed would average around 4.45 percent today. But it's probably 20 basis points higher than that, to the benefit of the biggest banks.

The top five mortgage lenders owned 63 percent of the market in the first three months of the year. That is powerful market concentration. The mortgage business is almost a cartel. I wouldn't be so bold as to accuse them of price fixing, but the big banks -- Wells Fargo, Bank of America, Chase, GMAC and Citi -- have tremendous pricing power. On top of that, every federal regulatory and statutory decision has gone their way in the last two years.

In short, I believe that the federal government, through the agency that administers Fannie Mae and Freddie Mac, is recapitalizing the big banks by making sure that their mortgage divisions make big profits when they sell to Fannie and Freddie.

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16 Comments
Holden Lewis
July 12, 2010 at 8:28 am

You're welcome, Ryan. Try it again and I'll ban you.

Ryan Paul
July 12, 2010 at 6:52 am

Thank you for providing information related to mortgages.

Doug Matteo
July 08, 2010 at 4:31 pm

"Jamie, this week I capitulated, and voted "down" in the Rate Trend Index. That's probably a sign that rates have hit bottom and will rise."

Thanks Wrong Way! You just had to go and change your vote...

Holden Lewis
July 08, 2010 at 3:30 pm

No advice on the direction of interest rates, only a guess. I'll guess that jumbo rates will stay about the same for the next few days. I am a terrible guesser.

As far as whether to pay a point to pay down the rate, the "classic" answer is to ask yourself if you plan to be in the house for longer than the 65-month payback time. A couple of months ago, I was talking to Rob Bernabe, who used to run E-Trade Mortgage and who recently wrote a book called "Mind Your Own Mortgage," and he says it's generally not worth it if the payback time is longer than two years. Actually, I think he specifically was talking about closing costs and refinancing, but the same principle should apply.

If the jumbo market gets sorted out, you might have a refi opportunity within five years.

Dennis
July 08, 2010 at 2:51 pm

I have to turn in my loan refi loan package in a few minutes and decide if I should lock the rates on my jumbo loan. Any advice on the direction of rates in the next few days?

How would you decide if it's worthwhile to pay a point to knock the rate down a bit. The payback would be about 65 months.

Thank you.