The average 30-year conventional fixed mortgage rates fell below 4 percent for the first time in history this week following a sharp drop in 10-year Treasuries early in the week as concerns over a global recession grew, according to Frank Nothaft, vice president and chief economist at Freddie Mac.
For the week ending October 5, the 30-year fixed rate averaged 3.94% with an average 0.8 point, down from 4.01% last week. This equates to a no point rate of 4.14%. While the average rate is below 4%, the four largest banks remain above 4.0%.
Considering the "reported" rate and what borrowers apparently are being offered, it's no wonder that refi activity pulled back in the week ending September 30 - despite historically attractive rate levels. Yesterday, the Mortgage Bankers Association (MBA) reported a 5.2% decline in the Refi Index to 4020 despite further lowering in mortgage rates.
At this time, some analysts say to reach last year's 5000+ high rates need to drop to 3.80%. Capacity constraints, appraisal issues, poor home values, and the weak economy and jobs market are all contributing to the muted response.
Tweaks to HARP and easing of reps and warranties are needed as well to help many homeowners refinance, and this is becoming increasingly likely. Deutsche Bank noted in recent research that "a number of groups have advised the agency to relax the representations and warranties that originators now make on high quality HARP-eligible loans and to raise the program's allowable loan-to-value ratio."
This morning there are reports that the FHFA will meet next week with some House Democrats to discuss HARP.
15-year and 5/1 hybrid ARM rates also set new lows of 3.94% and 2.96%, respectively, down two and six basis points from last week. Meanwhile, one-year ARM rates rose 12 basis points as shorter-term rates are pressured as a result of Operation Twist.