Fixed- and one-year adjustable rate mortgage rates set new record lows in the week ending Sept. 8 in response to the flight-to-safety rally that occurred with the stunningly weak employment report and continued sovereign debt induced anxiety in Europe. 

According to Freddie Mac's weekly survey, the 30-year fixed mortgage rate dropped 10 basis points to 4.12% with an average 0.7 point.  This places the no-point rate at 4.30% and puts 4.5% coupons more into the money.

While this may stimulate refinancing activity which has been woefully unresponsive since mid-August even as mortgage rates held to the low 4.20% area, it is expected to remain relatively muted as only the very pristine borrowers are actually qualifying for the lowest rates. 

As Deutsche Bank Securities analysts pointed out in a recent comment, the GSEs add on loan-level pricing adjustments (LLPAs) for FICOs lower than 720 and LTVs above 60%. They said this adds around 15 basis points to the primary mortgage market survey rate cited in Freddie Mac's report. In the three weeks ended Sept. 2, the Refinance Index has dropped 19% to ~3169.

In the other major loan programs, 15-year fixed rates averaged 3.33% compared to 3.39% previously, one-year rates were five basis points lower to 2.84%, while 5/1 hybrid ARM rates remained unchanged at their record low of 2.96%.

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