After four weeks of steady increases, mortgage rates have eased as 2010 got underway.

The 30-year fixed mortgage rates averaged 5.09%, with an average 0.7 point for the week ending Jan. 7, down from 5.14% in the last week of December, and similar to a year ago's 5.10% average.

In 2009, mortgage rates ranged between a high of 5.59% and record low of 4.71%, and averaged 5.04% compared with 6.05% in 2008. Many analysts as well as the Federal Reserve attributed the reduction in mortgage rates to the Fed's and Treasury Department's buying of $1.23 trillion in MBS in 2009.

However, a recent working paper by the National Bureau of Economic Research did not support this assumption. In an analysis that controlled for influencing risks of prepayment and default, the economic research bureau found "that the MBS program has no significant effect".

The bureau's analysts added that the empirical results of their analysis "raise doubts about the benefits in terms of lower mortgage interest rates of further increases in the size of the Fed's MBS portfolio or about the costs in terms of higher interest rates of gradually reducing the size of that portfolio."

In today's survey, Freddie Mac also reported 15-year fixed mortgage rates slipped four basis points to 4.50%, 5/1 hybrid ARM rates were unchanged at 4.44%, and one-year ARM rates averaged 4.31% compared with 4.33% last week.

Following some recovery in the Mortgage Bankers Association's Refinance Index with the conclusion of the holidays, refinancing activity is expected to continue to show a muted response despite attractive levels unless mortgage rates drop to the 4.50% area.

At this time, the outlook in 2010 is for mortgage rates to climb steadily higher over the year. In particular, Freddie Mac is currently projecting the 30-year mortgage rate to average 4.9% in 1Q10, unchanged from 4Q09, and by 4Q10 to average 5.9%.

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