Mortgage rates plummeted this week to the lowest levels in the history of Freddie Mac’s survey, which dates to 1971.
Freddie Mac aggregates rates from 125 lenders nationwide to come up with national average mortgage rates. It uses rates for borrowers with flawless credit scores. These rates are not available to every borrower.
The 15-year fixed-rate average dropped to 2.77 percent with an average 0.6 point. It was 2.86 percent a week ago and 3.6 percent a year ago. The five-year adjustable-rate average fell to 3.14 percent with an average 0.4 point. It was 3.28 percent a week ago and 3.68 percent a year ago.
“The headline mortgage rate fell to new lows this week, but conditions across the market remain much more varied than usual as the mortgage industry continues to grapple with uncertainty brought upon by forbearance programs and rapidly changing borrower profiles,” said Matthew Speakman, a Zillow economist. “The risk of losing money on these loans has led originators to tighten lending standards for certain loan types and borrowers. While some borrowers could be quoted rates close to the lowest they’ve ever been, others either with less-than-excellent credit scores or seeking an atypical loan type — like jumbo or FHA loans — may be offered a much-higher rate.”
The number of mortgages in forbearance has increased substantially in the past month amid the coronavirus pandemic. Earlier this week, the Mortgage Bankers Association announced that 3.5 million home loans, close to 7 percent, have entered forbearance. At the beginning of March, less than 1 percent of loans were in forbearance. When a loan goes into forbearance, payments are reduced or postponed but interest continues to accrue.
“Concern about the expense of those seeking forbearance and the potential for an increase of those loans ending up in default is keeping rates higher than they would be otherwise,” said Michael Becker, branch manager at Sierra Pacific Mortgage in Lutherville, Md.
The Federal Reserve is helping mortgage rates stay low, even though it didn’t undertake any major new steps at its meeting this week. The Fed doesn’t set rates for home loans, but its actions influence them. After the central bank’s meeting this week, Fed Chair Jerome H. Powell signaled that the Fed would continue to hold its benchmark rate near zero. He reiterated that the central bank is proceeding with its unlimited bond-buying purchases.
With the Fed buying $75 million in U.S. Treasurys and $50 billion in mortgage-backed securities daily at the height of the crisis, its balance sheet surged to $6.6 trillion last week. However, the central bank has begun to rein in its spending. This week, it has been buying about $10 billion in Treasurys and $8 billion in mortgage-backed securities daily. The Fed’s bond-buying program, which it also undertook during the 2008 financial crisis, is the main driver for lower rates.
“The Federal Reserve has pulled out all the stops to help the economy and financial markets weather the current pandemic,” said Mike Fratantoni, MBA’s chief economist. “In their statement [Wednesday], they made clear that supports would remain in place until the economy regains full employment and inflation trends return to normal. … It is clear they want their actions to result in lower rates for mortgage borrowers and recognize that this can only happen in the context of orderly markets. We expect that they will continue to modulate their purchases over the next few weeks, so long as markets remain stable.”
Bankrate.com, which puts out a weekly mortgage rate trend index, found about half the experts it surveyed predict rates will continue to go down in the coming week; about a third said they will remain about the same.
Mortgage rates “still are not at levels that are indicated by the prices of mortgage-backed securities,” Becker said. Powell “indicated that the Fed would not be in any hurry to remove measures that will support recovery from the pandemic. This should help support lower rates in the coming week.”
Meanwhile, mortgage applications were pulled in opposite directions last week. According to the MBA’s latest data, the market composite index — a measure of total loan application volume — decreased 3.3 percent from a week earlier. It was driven down by a decline in refinance applications. The refinance index fell 7 percent but was 218 percent higher than it was the same time last year. The refinance share of mortgage activity accounted for 71.6 percent of applications.
The index was pushed up by an increase in purchase applications. The purchase index jumped 12 percent but was 20 percent lower than it was a year ago.
“Mortgage applications were a mixed bag last week,” said Bob Broeksmit, MBA president and chief executive. “Since early March, the covid-19 pandemic and subsequent economic crisis disrupted what was expected to be a strong spring home-buying season. With purchase applications increasing for the second consecutive week, there’s hope the housing market will start to slowly stabilize in the coming months as parts of the country reopen.”
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