Several major banks lowered the prime lending rate to 13 1/2 percent yesterday, the third half-point drop for the key bank rate in a week, as a broad array of interest rates continued to move downward.
Chase Manhattan Bank, the nation's third largest, led the drop in the prime, bringing it to its lowest point since October 1980. The prime rate -- the basis for bank loans to the most creditworthy corporations -- began to decline from a 16 percent level in mid-July, as the Federal Reserve eased the availability of money in the face of weak demand for credit.
The yield on 90-day U.S. Treasury bills declined to 8.68 percent Friday down from 13.4 percent at the beginning of July. Ten-year Treasury bonds declined to 12.18 percent, from a yield of 14.7 percent in late June.
Mortgage interest rates dropped significantly this past week, although they still remain too high to trigger any noticeable upswing in the housing finance market.
Interest Data Reports, a Washington-area survey, said the average rate on a conventional, fixed-rate 30-year mortgage with a 20 percent down payment declined to 15.76 percent from 16.18 percent the previous week. Quoted rates in the three jurisdictions ranged from a high of 16.75 percent to a low of 14.9 percent, offered by Shearson/American Express.
The last time local mortgage rates were below 16 percent was on April 30, 1981. The peak of 18.94 percent was recorded on Oct. 1 of that year.
Because many home sellers are offering "creative financing" at lower interest rates, fewer than half of all home buyers are paying the quoted market rate, however. The effective mortgage rate for deals with creative financing is between 12 and 13 percent, according to industry sources.
The rate for FHA/VA government insured mortgages dropped from 15.5 to 15 percent this week and is widely expected to come down again next week. The number of points lenders charged sellers on FHA and VA loans also dropped to an average of 1.46 from 3.18 the previous week and 4.95 in early August. A point is a surcharge of one percent of the total loan, payable at settlement, to bring the lender's yield up to market levels. The buyer also pays one point.
Elsewhere in the country mortgage rates are also decreasing. Several California savings and loans reduced their rates to 15 percent recently. And this week in New York City two savings banks cut their rates to 14 and 14.5 percent for fixed rate and adjustable rate mortgages respectively.
In the secondary market, yields on mortgages purchased by the Federal Home Loan Mortgage Corp. fell to 15.523 from 16.063 percent the previous week.