Rates flat in anticipation of housing plan

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There wasn’t much change in mortgage rates this week, as the industry awaited details of the Obama administration’s housing plan.

The benchmark 30-year fixed-rate mortgage was unchanged at 5.34 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 0.41 discount and origination points. One year ago, the mortgage index was 6.37 percent; four weeks ago, it was 5.59 percent.

The benchmark 15-year fixed-rate mortgage fell 10 basis points to 4.93 percent. The benchmark 5/1 adjustable-rate mortgage was unchanged at 5.37 percent.

Weekly national mortgage survey

Results of Bankrate.com’s Feb. 19, 2009, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
30-year fixed 15-year fixed 5-year ARM
This week’s rate: 5.34% 5.03% 5.37%
Change from last week: N/C -0.10 N/C
Monthly payment: $920.36 $1,298.80 $923.44
Change from last week: N/C -$8.59 N/C

On Tuesday, investors sold stocks in a big way. Seeking the safety of owning government debt, they bought Treasury notes. Treasury yields dipped as a result. In other words, investors, including many foreigners, eagerly competed to lend money to the U.S. government, and were willing to accept lower interest rates. It was better than losing more money in the stock market.

Although investors rushed to buy Treasury bonds, they were not eager to buy mortgage bonds, which is another way of saying that they didn’t compete to lend money to homeowners. So mortgage rates remained relatively steady, while Treasury yields dropped.

Yields on 10-year Treasuries have fallen about 40 basis points in the last three weeks, without an equivalent decline in mortgage rates, observes Cameron Findlay, chief economist for LendingTree.com. “It’s the risk premium,” he says. “People are saying, ‘I want the safety and security of Treasuries. But mortgages? I’m not loving you. If I buy a mortgage, I want to be compensated for it, and I want to be compensated more.'”

There was also the matter of the impending announcement of President Barack Obama’s foreclosure-prevention plan. Some investors might have been waiting to hear details of that plan before buying any more mortgage bonds.

The foreclosure-prevention plan wasn’t the only piece of federal policy affecting housing this week. The economic stimulus plan returned “jumbo conforming” limits back to where they were for most of 2008.

Last year, the jumbo conforming limit was temporarily set at $729,750 in the metropolitan areas with the most expensive housing — places such as Los Angeles, New York City and San Francisco. At the beginning of this year, that limit was rolled back, to a maximum of $625,500. The economic stimulus law returns the limit to $729,750.

The new law also increased a tax credit for first-time homebuyers. The maximum tax credit is $8,000, compared with the previous $7,500. Another change: People who bought houses last year have to repay the tax credit over 15 years; people who buy this year won’t have to repay the tax credit. What used to be an interest-free loan from the government is now a grant.