Mortgage rates go down, then up again
By Holden Lewis • Bankrate.com


Mortgage shoppers got stuck inside an old-fashioned melodrama in the last week.

In the first act, mortgage rates sank as markets digested the federal government's takeover of Freddie Mac and Fannie Mae. Mortgage shoppers exulted at Uncle Sam's rescue of Fannie and Freddie. Some dared to hope that rates would fall even lower.

The melodrama's second act occurred over a tense weekend: The investment bank Lehman Brothers lay tied up on the railroad tracks. Would Uncle Sam ride to the rescue? No! Lehman was gorily dismembered as Uncle Sam stood by, impassively. The mortgage market enjoyed the spectacle, as rates fell even more.

Weekly national mortgage survey
Results of Bankrate.com's Sept. 17, 2008, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:

30-year fixed
15-year fixed
5-year ARM
This week's rate:
6.16%
5.84%
6.07%
Change from last week:
+0.01
+0.03
-0.01
Monthly payment:
$1006.29
$1378.14
$996.70
Change from last week:
+$1.06
+$2.66
-$1.06

"The bald eagle has said, 'We're done bailing anyone out,'" mortgage broker Dan Dowling opined Monday morning. His advice on whether to lock a rate or float: "I think right now, your best ploy is to lock and monitor."

Act III: Tuesday afternoon, Uncle Sam cackled as he denied the Fed rate cut that the villagers desperately wanted. That night, Wall Street and rating agencies fitted insurance giant AIG with a noose. Just as the trapdoor opened, a bullet sliced through the hangman's rope, and AIG landed on its feet. Uncle Sam rode up, rifle in hand. "You belong to me now," he told AIG.

The mortgage market reacted badly to the plot twists of Act III. Fixed-rate mortgages rebounded Wednesday morning and took back the declines of the previous five workdays and then some. And Dowling, president of United Mortgage Capital in Altamonte Springs, Fla., was looking mighty smart for advising clients to lock the day before.

The benchmark 30-year fixed-rate mortgage rose 1 basis point, to 6.16 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.41 discount and origination points. One year ago, the mortgage index was 6.32 percent; four weeks ago, it was 6.66 percent.

The benchmark 15-year fixed-rate mortgage rose 3 basis points, to 5.84 percent, and the 30-year, fixed-rate jumbo, for larger loans, fell 5 basis points, to 7.36 percent. The benchmark 5/1 adjustable-rate mortgage fell 1 basis point, to 6.07 percent.

A thick plot
The performance of mortgage rates in the past week brought generally negative reviews. For one thing, the plot was hard to follow. "I don't know. I stopped trying to figure this out a long time ago," mortgage broker Dan Green, of Mobium Mortgage in Cincinnati, said. Actually, he spends a lot of time trying to figure it out, but lately all has been confusion.
Green's advice: "Stay aware, take advantage of opportunities that present themselves, and be ready to act. When mortgage markets move so quickly, it's because there's a market imbalance. And Wall Street seeks balance, and that's why they're short-lived."

Steve Habetz, owner of Threshold Mortgage, a brokerage in Westport, Conn., said he believes rates will remain low, "to where people say, 'I'm willing to assume the risk of owning a home" that could lose value. He said the other outcome -- higher mortgage rates -- "is far too painful for this nation to endure."

Alan Rosenbaum, president of Guardhill Financial, a mortgage bank in New York City, said he believes the mortgage marketplace is edging close to capitulation, when holders of mortgage debt recognize the true values of their degraded portfolios. "I think that we may realize that we're very close to a bottom," he said. "If we can get banks lending again, I think real estate will come back and the overall economy will come back."