Freddie Mac reported new record low rates were set for 30- and 15-year fixed mortgage rates in the week ending September 29.

The 30-year rate declined eight basis points to 4.01% with an average 0.7 point, which places the no-point rate at 4.19%. Freddie's press release pointed out that the West region recorded the lowest average rate at 3.95%. 15-year fixed rates slipped one basis point to 3.28%.  Meanwhile, 5/1 hybrid ARMs were unchanged at 3.02%, while one-year ARM rates rose to 2.83% from 2.82%.


While this should spur refi activity, UBS has previously stated that it believes mortgage rates need to drop to 3.80% in order to reach the same peak in speeds experienced in November 2010.  Based on the Mortgage Banker's Association expanded survey coverage to 75% of the retail market from 50%, UBS analyst Jeffrey Ho equates this to around 5750 on the Refi Index. Yesterday, the MBA reported the Refi Index jumped 11.2% to 4240 for the week ending September 16.

At the same time, the rate quoted by Freddie Mac is not necessarily the rate many borrowers are receiving. In research from Barclays Capital, analysts pointed out that Freddie's survey rate is aimed primarily at purchase loans and this has become more evident since Q4 2009. 

Starting at that time, Barclays said the gross WAC of a refi loan is 10-20 basis points higher than the gross WAC of a purchase loan after controlling for FICO, LTV and even points paid up front (purchase loans).  They added that looking at rates quoted by the four major lenders and controlling for term, loan size, FICO, LTV, geography, and upfront points revealed that almost all of them quoted rates on refis at 15-50 basis points higher than a purchase loan.

In a comment from Deutsche Bank, analysts noted considerable tiering in 30-year posted rates among the major lenders.  Also, the MBA quoted in its report yesterday an average rate for conforming loans at 4.25%. They said using the PMMS survey rate implies a refi incentive that is 10-20 basis points greater than what Deutsche or the MBA's survey which could lead to a potential overestimation of speeds.

 

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