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30-Yr fixed 4.750 % 0.7 to 1
15-Yr fixed 3.750 % 0.7 to 1
5/1 ARM 3.125 % 0.7 to 1
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FHA Loans Respond To Developments

The month of October has seen a tentative agreement between French and European leaders emerge about solving the continent’s debt crisis by November. Better-than-expected employment data sent stocks and bond yields higher as investors jubilantly crowed their confidence. The positive news this month has also impacted the mortgage market, resulting in slightly higher rates. Freddie Mac reported that the average rate for a 30-year fixed-rate loan fell to the lowest level on record, just above 3.8 percent. The previous week it had reported the rate at 4.01 percent. The rate on the 30-year loan reached 4.09 percent as of Friday, October 7, 2011, according to Mortgage News Daily.

FHA mortgage rates also recovered, though with their premium over conventional rates, they were still considerably lower. The spread between the two rates also widened a little, as evidenced by the FHA 30-year fixed-rate rising to 3.79, which compared with the conventional 30-year rate of 4.09 means a rate spread of .30 percent or 30 basis points. Previously, the spread had held steady at .22 percent or 22 basis points. This implies the positive economic data was enough to send conventional rates slightly higher than FHA mortgage rates, widening the spread.

As to the next week, on Monday, October 10, 2011, the yield on the benchmark 10-year Treasury note rose above the two percent level to 2.07 percent. The mortgage market, both FHA and conventional loans, pays attention to this yield because the average duration of a 30-year loan is actually only seven years. Homeowners refinance or move with the result that the full maturity is rarely reached by the same loan. Higher bond yields generally mean higher mortgage rates. Local mortgage rates for specific municipalities will be influenced by the credit ratings of borrowers in addition to conditions in the local real estate market.

Operation Twist, selling short-term Treasury securities and buying long-term Treasury securities, is meant to provide an extra jolt to the economy but stops short of full-blown quantitative easing. The purpose of this new Federal Reserve program is to lower borrowing costs for the long-term and raise them for the short-term. With rising yields in the immediate aftermath, it is yet unknown if this will be successful. Next week should see local mortgage rates slightly higher, resulting in a higher weekly average. This slight upward pressure may abate just as quickly due to the bond market’s unpredictability these days.