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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 08, 2010 at 2:30 pm

Interesting idea. The origination and servicing divisions of major banks would probably disagree on the wisdom of allowing portable mortgages. The Realtors would like it, if it stimulated home sales.

I wrote about portable mortgages a few years ago, but you probably remember more about that article than I do.

Mark
July 08, 2010 at 2:27 pm

Just to clarify, I tend to be indecisive in tricky financial matters. So, I probably won't be mad since I got a good rate. But I might be mad at Holden if his prediction holds up (and the rates go down) because his prediction was predicated on the assumption that the rates would do the opposite.

Jesse
July 08, 2010 at 1:09 pm

Hi Holden...I have enjoyed your blog for a long time. And I apologize if this might be a little off topic, but I wanted to get your thoughts on the notion of a "portable mortgage." I remember reading an article a few years back about the idea, but it never really caught on.

Now that rates are incredibly low (and the housing market continues to slump), do you think the idea of a "portable mortgage" would be feasible? From an outsiders perspective, it seems like a good way to increase demand in the housing market (i.e. move up or move down buyers).

Mark
July 08, 2010 at 10:38 am

I just locked in a refi, 30 yrs @4.25 (1 point). If they go lower I'll be suprised (and mad).

Holden Lewis
July 08, 2010 at 10:19 am

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.

To summarize: I think they can fall further, because they keep falling. But my track record on rate predictions has been so poor lately that people should assume that rates will go in the opposite direction of my guess.

Jamie
July 08, 2010 at 9:04 am

Holden -- Really enjoy your blog. Based on your recent posts, are we probably at the low point for mortgage rates for the forseeable future (give or take a quarter point and barring any global catastrophe)? As you mention, they should go down further but don't. Thanks.

Holden Lewis
July 07, 2010 at 4:55 pm

I assume Amerisave is trustworthy. They've been around a long time.

I'm not responsible for the advertising department's policies, so I can't comment on them. And they're not responsible for what I write.

Holden Lewis
July 07, 2010 at 4:53 pm

I'll point that out tomorrow, Tim, just as I wrote last Thursday:

In this week's Rate Trend Index, a plurality of our mortgage experts predict that rates will rise over the next week. I voted "up," too. That's good news for mortgage borrowers, because only 19 of my last 52 RTI predictions have been correct, for a batting average of .365. That's an invitation for the haters to write comments.

Tim
July 07, 2010 at 4:24 pm

Other whacky thing is - why didn't you point out that you and the other mortgage rate prognostigators were wrong again? Rate went down. Will go down another quarter point at least as Europe troubles continue.

roger rabbit
July 07, 2010 at 12:25 pm

AmeriSave mortgage lender--lowest rates on the web--is prominently advertised on Bankrate.com but I have read a lot of postings from unhappy applicants. Is AmeriSave trustworthy and if they are not, why is Bankrate.com carrying such a sponsor on its website?