Mortgage Trends This Week: August 17


The Federal Reserve has waved the “all clear sign” but consumers may not be buying what the Fed is selling. Add to the mix a major U.S. lender going under and continued turmoil in the housing market and you have the makings of another roiling week for mortgage rates.

The BankingMyWay National Mortgage Rate Tracker tells the tale, with fixed rates bouncing up a few more points, after last week’s hike in rates, and adjustable-rate mortgages heading downward on the short-end, and heading upward on five-year models.

30-year fixed-rate mortgages wound up at 5.53%, up from 5.40% earlier in the week. Fifteen-year mortgages rose to 4.94%, up from 4.83%. Three-year ARM’s fell to 4.91% from 5%, and five-year ARM’s rose to 4.98% on Friday from 4.87% earlier in the week.

Mortgage rates are skittish as a rule, bouncing up and down seemingly on the slight flutter of a butterfly’s wings. OK, that’s hyperbole, but in a week where the Fed delivered some reassuring economic news, you’d expect some upward movement in mortgage rates, as signs of a stronger economy should pull rates up across the board, the better to battle the Federal Reserve’s primary bugaboo – inflation.

But is the economy really getting better? Consumer consumption numbers coming out last week suggest that that the U.S. public is still wary about giving into the Fed’s relatively rosy economic update.

Mortgage borrowers may still be licking their chops over the still-sour U.S. housing market. Good deals are out there, as evidenced by a recent survey by online real estate advertising Trulia that says 25% of all U.S. homes on the market have cut the sale price at least once during the past three months. Trulia estimates that the price cuts, in total, amount to $28 billion, with the average price cut clocking in at 10%.

That’s hardly the sign of a housing rebound.

Adding further fuel to the fire was the move by FDIC officials to shutter Colonial BancGroup Inc. last Friday. Colonial was a fairly big-sized player in the real estate market – and is the biggest bank to fail so far in 2009, the FDIC says. The bank had 346 branches, which now shift to new ownership under BB&T Corporation.

Perhaps the most important takeaway from the Colonial bust is that the already reeling FDIC takes a $2.8 billion hit from its insurance fund. It was the 70th failed bank taken down by the FDIC in 2009, and we’re not out of August yet.

So once again we have a mixed bag when it comes to mortgage rates. Good news from the Federal Reserve, but some disturbing counter-news coming from the banking sector and from the housing market.

That should guarantee even more volatility in the mortgage rate market as September nears – and as the summer home buying season draws to a close.

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