US Mortgage Rates Decline Dramatically

Mortgage rates have fallen as a result of the US federal government’s intervention of mortgage group Freddie Mac and Fannie Mae.

The benchmark 30-year fixed-rate mortgage fell 40 basis points, to 6.15 percent, according to the national survey of large lenders. The mortgages in this week’s survey had an average total of 0.43 discount and origination points. One year ago, the mortgage index was 6.28 percent; four weeks ago, it was 6.74 percent.

The benchmark 15-year fixed-rate mortgage fell 28 basis points, to 5.81 percent, and the 30-year jumbo, for large loans, fell 11 basis points, to 7.41 percent. The benchmark 5/1 adjustable-rate mortgage fell 21 basis points, to 6.08 percent.

While rates fell abruptly, it wasn’t even the biggest one-week drop this year. Nor is this the lowest level for mortgage rates this year. In mid-March, the 30-year fixed fell 41 basis points in one week, to 5.98 percent.

The road to possibly higher rates is rather long and winding according to economist sanders.

“My concern is that the feds are taking over and, for better or for worse, the profit motive has been dissipated,”

On top of that, the government’s takeover plan calls for Fannie and Freddie to sell the mortgage-backed securities that they own. That sell-off is scheduled to start in 2010 and to last for years.

Think of the implications of that sell-off. Rates fell this week because Treasury announced that the government-controlled Fannie and Freddie will buy mortgage-backed securities. So what’s the natural consequence when Fannie and Freddie are required to sell mortgage-backed securities? If buying them causes rates to go down, then it seems natural that selling them would cause mortgage rates to rise.

That outcome is a few years down the road, and it’s not a sure thing. “I don’t expect much to happen until the next president and Congress take office,” says Dean Baker, economist and co-director of the Center for Economic and Policy Research, a Washington, D.C., think tank.

He says Republicans might want to break up and privatize Fannie and Freddie. Some Democrats might want to keep them under government control and focus them on meeting affordable-housing goals. Some politicians might want to restore Fannie and Freddie to what they were before — government-sponsored enterprises — but regulated more heavily.

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