After decreasing last week, fixed related mortgage rates moved higher for the week ending Dec. 30. According to Freddie Mac's survey, 30-year fixed mortgage rates jumped five basis points to 4.86% with an average 0.8 point.
Rates are at their highest level since early to mid-May. With the no-point rate over 5%, many credit-eligible borrowers are out of the refinancing window, which indicates slower prepayments in the months ahead.
In fact, some downward revisions on speeds for January and February (reported in February and March) are starting to occur as a result of the recent increases in mortgage rates.
For the month of December, the 30-year fixed rate averaged 4.71% versus 4.30% in November, with rates increasing to 4.86% currently from 4.40% at the end of November.
At this time, prepayment speeds for 30-year conventional MBS are projected to decline 15% to 20% in January, and another 10% in February.
Freddie Mac also reported 15-year fixed rates increased five basis points to 4.20, 5/1 hybrid ARM rates averaged 3.77% compared to 3.75% previously, while one-year ARM rates declined 14 basis points to 3.26%.
For 2010, 30-year mortgage rates averaged 4.69% with a record low of 4.17% set in mid-November and a high for the year of 5.21% set in early April following the end of the Federal Reserve's MBS purchase program.
This compares to an average of 5.04% in 2009 with a minimum rate of 4.71% and maximum of 5.59%.
Despite historically attractive mortgage rate levels, many borrowers were unable to take advantage of them due to credit-impairment related to tight credit conditions and underwater mortgages as a result of home price declines.
In 2011, mortgage rates are projected to increase to an average 5.1% in 4Q11 from 4.4% in 4Q10 with rates expected to average 4.9% - slightly higher than 2010's average.
Meanwhile, the 10-year note yield is projected to average 3.4% in the fourth quarter of next year from 2.8% this quarter, with yearly averages of 3.2% and 3.3%, respectively, for 2010 and 2011.
While mortgage rates are projected to remain historically attractive, prepayment speeds in 2011 look to remain muted as the issues facing borrowers — tight credit standards, mortgage banker constraints, poor home valuations, and a weak jobs market — are expected to persist next year, making refinancing difficult or too costly for many borrowers. The only risks to prepayments are expected to be government-induced.
