Mortgage Trends This Week: Jan. 25

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The stock market’s shaky foundation led to a decline in mortgage interest rates last week, as investors fled equities in favor of less risky investments, like U.S. Treasuries and bond mutual funds.

There’s a palpable sense of fear in the stock market, fueled by widespread concern that talk of an economic recovery was just that — talk. The Dow Jones Industrial Average lost more than 500 points from Jan. 20-22 and 4.1% of its overall value in just one week.

It’s almost as if the stock market was looking for a reason to correct, and it might have found it in the form of aggressive statements from President Obama about reforming big banks. Those reforms could include limiting the size of banks and restricting their trading and asset risk-taking strategies. Financial stocks suffered as a result, and a Friday report of “unexpected” job losses in the weekly U.S. unemployment filings only poured more gasoline on the fire.

We’ve said it before and we will say it again. When confidence in the economy ebbs, and a 500-point decline in the stock market is a good sign of that syndrome, the fixed-income market usually picks up some of the slack. But as bond prices rise, there’s less incentive from financial lenders to hike interest rates to draw customers. Consequently, interest rates, including mortgages, tend to fall as they have this week.

With those thoughts in mind, here are the mortgage numbers from last week, as measured by the BankingMyWay Weekly Mortgage Rate Tracker:

Description            This Week        Last Week

One-Year ARM 4.14%             4.78%

Three-Year ARM 4.51%             4.60%

Five-Year ARM 4.28%             4.41%

15-Year Mortgage 4.55%             4.60%

30-Year Mortgage 5.12%             5.15%

Also contributing to uncertainty in the economy is news that the U.S. Treasury Department has failed to come to an agreement with leading U.S. mortgage lenders over details on a uniform home loan modification program.

The devil is in the details on these sorts of public-private negotiations and this situation is no different. The primary reason that lenders and the government can’t come to exact terms focuses on a key issue: bankers don’t want to make it easier for homeowners to obtain a mortgage modification — specifically a “second round” loan modification.

Lenders say that about 25% of home borrowers who qualified for a trial loan modification have already fallen behind on their new loan agreements, so they don’t want to crawl any further out on a limb for distressed mortgage holders. Financial institutions also want more incentives from the government to green light more loan modifications, but exactly how much carrot and how much stick should be involved is, right now, an open-ended question.

That issue, coupled with a surprising call from Rep. Barney Frank to abolish Freddie Mac and Fannie Mae, have laid a platform of economic uncertainty that has kept rates down — and that’s been the trend so far in 2010.

Consequently, mortgage borrowers can still grab a low mortgage rate this week, especially if you have good credit and enough cash for a down payment and closing costs.

To get the best mortgage rate deal possible, visit BankingMyWay’s Mortgage Rate Search. Week to week, you won’t find rate deals lower anywhere else.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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