Fixed mortgages inched higher in the week ending Oct. 28, according to Freddie Mac's weekly survey.

The 30-year fixed mortgage rates averaged 4.23% versus 4.21% last week — four basis points above its recent record low.

For the month of October, mortgage rates also averaged 4.23%, down 12 basis points from September's average. The 15-year fixed rates were also two basis points higher to 3.66%. Meanwhile, 5/1 hybrid ARM rates fell four basis points to 3.41% — another record low, while one-year rates were unchanged at its record low of 3.30%.

Credit Suisse analysts expect mortgage rates to ease back given their outlook for rates to rally and/or the primary-secondary spread to tighten.

Other analysts, however, are not so sure about meaningful narrowing in the spread. For example, Morgan Stanley analysts projected that increased costs for servicers related to foreclosures and increased scrutiny to reduce put-backs could keep the spread on the wider side going forward, despite some easing in capacity constraints.

Other anecdotal evidence comes from a recent MBA news brief that reported mortgage bankers are rejecting some Fannie Mae Delegated Underwriting and Servicing or DUS products and Freddie Mac Loan Prospector loans because of concerns over put-backs. One banker specifically noted that his company was spending a significant amount of capital and time in order to deal with these issues.

At its annual conference in Atlanta held this week, the Mortgage Bankers Association (MBA) reported its economic outlook for the remainder of the year and through 2012.

In terms of mortgage rates, the association projected 30-year mortgage rates to average 4.4% in 4Q10, down from an estimated average of 4.6% in the third quarter. After setting record lows in 2010, rates are expected to steadily rise in 2011 and 2012, with the fourth quarter averaging 5.1% and 5.7%, respectively.

As a result of higher rates and a smaller universe of homeowners able to refinance, the MBA estimated that refinancing originations to plunge 60% in 2011 to $370 billion and another 16% in 2012 to $310 billion from a projected $921 billion in 2010. If this materializes, it would be the lowest level of refinance originations since 2000.

Meanwhile, purchase originations are seen picking up from an estimated $480 billion in 2010 to $626 billion in 2011 and $877 billion in 2012.

Overall, mortgage originations are projected to decline to $996 billion 2011 from $1.4 trillion in 2010, which would be the lowest level of originations since 1997, said the MBA.

The economy and employment are expected to remain sluggish. The MBA economists estimated growth at just 2.1% in 2011 given that the unemployment rate is increasing to 9.9% in the first and second quarters, before sliding back to 9.5% by the end of the year.

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