Mortgage Rates Fell in Latest Week: Freddie Mac

U.S. mortgage rates dropped in the latest week, a move that bodes well for the hard-hit U.S. housing market, which has been showing signs of a recovery.

Interest rates on U.S. 30-year fixed-rate mortgages dropped to 5.32 percent for the week ending July 2, according to a survey released on Thursday by home funding company Freddie Mac.

That was down from the previous week's 5.42 percent, but significantly higher than the record low of 4.78 percent set the week ending April 2. Freddie Mac started the Primary Mortgage Market Survey in 1971.

Debt is driving interest rates, Cameron Findlay, chief economist at LendingTree.com in Charlotte, North Carolina, said.

"The true bellwether of rates is the supply of U.S. government debt, which continues to dominate headlines and mortgage rate direction," he said. "The stronger-than-anticipated demand for the debt has helped maintain rates and even driven them slightly lower," he said.

The drop in mortgage rates bodes well for the U.S. housing market's stabilization, with sales rising and home price declines moderating in many regions of the country.

"Lower mortgage rates are helping to support the housing market," Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement. "The 30-year fixed-rate mortgage rate peaked this year over the week of June 11 and is now around a quarter-of-a-percentage point lower this week," he said.

Mortgage rates, however, remained above 5 percent for a fifth straight week. Experts say mortgage rates at 5 percent and below are what is necessary to make a significant impact on home loan demand, which has dropped significantly in recent weeks.

Thirty-year mortgage rates had mostly been on a downward trend since the Federal Reserve unveiled its plan to buy mortgage-backed debt in late November. But the Fed met resistance in the bond market.

Treasury yields, which are linked to mortgage rates, rose sharply early last month as inflation fears lessened their appeal and mortgage rates responded in kind. Treasury yields, however, have come down recently, allowing rates to fall.

The U.S. government has embarked on an aggressive plan to bring mortgage rates down to levels that will spur demand and help the hard-hit housing market begin to recover.

The Federal Reserve has set a goal to buy up to $1.25 trillion of agency MBS, $300 billion of Treasuries and $200 billion of agency debt in 2009 to lower borrowing costs.

The battered U.S. housing market is both the source and a major casualty of the credit crisis. A setback for the market could prolong a turnaround for the United States.

The Obama administration on Wednesday said it is expanding the number of borrowers who can refinance home loans under its housing rescue plan. Fannie Mae and Freddie Mac , under the new program, will allow borrowers with mortgages worth up to 125 percent of their home's value to refinance under its program, up from a 105 percent limit.

Other Rates Mixed

Freddie Mac said the 15-year fixed-rate mortgage averaged 4.77 percent in the latest week, down from 4.87 percent the prior week.

One-year adjustable-rate mortgages, or ARMs, rose to an average of 4.94 percent from 4.93 percent last week. Freddie Mac said the "5/1" ARM, set at a fixed rate for five years and adjustable each following year, averaged 4.88 percent, compared with 4.99 percent a week earlier.

A year ago, 30-year mortgage rates averaged 6.35 percent, 15-year mortgages were at 5.92 percent and the one-year ARM was at 5.17 percent. A year ago, the 5/1 ARM averaged 5.78 percent.

Lenders charged an average of 0.7 percent in fees and points on 30-year mortgages and on 15-year mortgages, unchanged from the previous week.

_____________________________________
Calculators and Advice from Bankrate.com:

• Compare Mortgage Rates Nationwide
• Struggling to Save Your Home? Get Help Here

_____________________________________

Copyright 2009 Reuters. Click for restrictions.