Freddie Mac: Mortgage rates ease after run-up; 30-year at 4.29%

Fixed mortgage rates fell early this week following last week’s dramatic surge, with lenders offering 30-year home loans to solid borrowers at an average of 4.29%, according to Freddie Mac.

The average rate had spiked to 4.46% a week earlier on fears that the Federal Reserve would soon cut back on a major bond-buying program designed to keep interest rates low.

The latest rate is still nearly a percentage point above last fall’s record low of 3.31% -- high enough to cut sharply into home refinancings.

The 15-year fixed loan average fell from 3.5% to 3.39%, Freddie said in its report, issued Wednesday. The record low for the 15-year mortgage, which has been popular with refinancers, was recorded at 2.56% in Freddie Mac’s May 2 survey.

Quiz: How much do you know about mortgages?

The current rates, a bargain by historical standards, reflect speculation over when the Fed will reduce its $85 billion a month in purchases of Treasury and mortgage-backed securities -- a stimulus program designed to keep long-term rates low.

Mortgage applications fell 12% last week from the previous week, according to the Mortgage Bankers Assn., with refinances off sharply and purchase applications down slightly. The refinance share of applications fell to 64%, the banker group said in a report -- its lowest level in more than two years.

“At these rates, many fewer homeowners have an incentive to refinance,� said Michael Fratantoni, vice president of research and economics at the trade group. For borrowers who want to purchase homes, “affordability remains strong,� he said.

As fear of rising rates swept through the credit markets last week, mortgage bond investors rushed to sell, creating a “negative feedback loop� that drove rates still higher, said Laurie Goodman, a mortgage analyst with Amherst Securities Group.

This caused “very large dislocations� in trading of government-sponsored mortgage securities backed by Freddie Mac and its cousin, Fannie Mae, Goodman wrote in a report to investors this week.

She said certain mortgage bonds now looked cheap, with the selloff “far more than is justified by the fundamentals,� given that the Fed has not yet begun to taper off on its bond purchases.

The Freddie Mac survey was put out a day early because Thursday, the usual day of release, is Independence Day. The survey asks lenders about the terms they are offering to solid borrowers who pay less than 1% of the loan amount in upfront lender fees and points.

US 30 Year Mortgage Rate data by YCharts

ALSO:

National home prices jump 12% in May

Citi to pay Fannie nearly $1 billion over flawed mortgages

Construction spending jumps, propeled by building of new homes