Mortgage Rates Hit Record Low

(CBS MarketWatch)  Mortgage rates tumbled again this week, bringing all three loan types tracked by Freddie Mac to their lowest level on record.

Freddie Mac said mortgage rates fell for the sixth straight week, bringing the benchmark 30-year, fixed loan to a national average 5.34 percent in the week ending May 23, down from 5.45 percent a week ago. That was the lowest since Freddie Mac started tracking mortgages in 1971.

The 15-year mortgage dropped to 4.73 percent from 4.84 percent, the lowest since the loan has been monitored, and the one-year, Treasury-indexed adjustable-rate mortgage hit 3.61 percent, off from 3.67 percent, also a record low. All the mortgages required the payment of 0.7 points to achieve the rate; a point is one percent of the loan amount.

"Long-term bond yields dropped leading up to Federal Reserve Chairman Greenspan's testimony to Congress over speculation of what he may say about deflation and over the possibility of the Federal Reserve buying long-term Treasury bonds to fight it," said Frank Nothaft, Freddie Mac chief economist.

"Consequently, interest rates for fixed-rate mortgages and one-year ARMs fell to another record low this week. With mortgage rates continuing to slip, a new wave of refinancing has appeared."

According to Freddie Mac's quarterly refinance review, the average age of a refinanced loan fell to 1.9 years in the first quarter of this year, Nothaft said, signaling an entire new stream of borrowers were now taking advantage of the declines; two years ago, 30-year rates were at about 7 percent.

The low rates are bringing an avalanche of refinancing applications into the nation's mortgage bankers, and consumers are likely to see mounting delays in loan processing. Make sure your mortgage-rate lock doesn't spring open.

The Mortgage Bankers Association of America said its seasonally adjusted refinance index increased to 8351.1 in the week ending May 16 from 7250 one week earlier. That fueled an approximate 10 percent jump in the overall applications index, despite a 5 percent decline in applications for home-purchase mortgages.

Refinancing activity represented 76 percent of total applications last week, nearing its record of 78 percent set in March.

"Last week, long-term interest rates continued to decrease in response to the Federal Open Market Committee's May 6 comments regarding the current very low level of inflation," said MBA economist Phil Colling.

"Interest rates are now at 45-year lows, and consumers are definitely taking advantage these rates. MBA now expects 2003 to be yet another record year in terms of mortgage originations," he said.

The mortgage trade group revised upward its projection on mortgage originations this year to $3 trillion, which would eclipse last year's record $2.5 trillion in mortgage activity.

The average interest rate for 30-year fixed-rate mortgages in the MBA survey decreased to a record low of 5.17 percent from the previous record low of 5.27 percent one week earlier, with points decreasing to 1.40 from 1.43 (including the origination fee) for 80 percent loan-to-value ratio loans. The MBA survey covers about 40 percent of the U.S. mortgage market.