Mortgage Trends This Week: Oct. 18

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Mortgage rates slid further last week, as the lack of any economic “motivators” continue to make mortgage loans cheaper.

The dominant theme in the mortgage market this week is the fallout from the “robo-signing” scandal, where banks and lenders are battling toxic mortgage loan foreclosure procedures that have locked down the U.S. foreclosure market.

To mortgage lenders, that’s actually a best-case scenario. The downside is actually a lot scarier. Rochdale Securities Dick Bove ruffled up the mortgage market last Friday when he said that banks could face $80 billion in losses over the robo-signing issue.

Bove says that the losses won’t stem from any stalled foreclosures, but from the high number of lawsuits that should follow from both homeowners and mortgage-backed securities investors. He could be on to something. Throw the loaded term ‘fraud” into a public courtroom setting and not only will the fur fly legally, but nervous investors will begin to sell off bank stocks in advance of any big settlement payouts.

"Huge amounts of monies have been lost and there are very angry participants at every level of the system seeking to recover the funds that they have lost," Bove said in an analyst commentary.

Big bank stock investors are already rushing for the exits. The KBW Bank Index was down 3.3% last week, while big banks stocks like Bank of America (Stock Quote; BAC) and JP Morgan Chase (Stock Quote: JPM) saw their shares fall over nervousness from the foreclosure scandal.

The fear is that banks and lenders might have to repurchase billions in toxic home loans owned by investors holding mortgage-backed securities. The investment firm Branch Hill Capital estimates that Bank of America alone may have to buy back about $74 billion in faulty mortgages.

But that’s not all. The mortgage market, Bove adds, could suffer with an extended foreclosure moratorium. His thinking is this: U.S. home values will decline if hundreds of thousands of foreclosed homes hit the market at the same time after the moratorium is lifted. That puts more houses on the market, thus devaluing the prices of homes across the board, he adds.

"The combination of the moratorium and the lawsuits are likely to cause the major mortgage originators to withdraw from the markets while they deal with their problems. There is no one to replace them," Bove wrote. "This could cause the rates on mortgages to rise, further depress home mortgage prices, and increase foreclosures."

So if you’re looking to refinance, or buy a new home, the future really is now. If Bove is correct, rates may rise and you won’t get the same deal six months from nowthat you can get today.

Keep that thought in mind as we review last week’s mortgage rates, as measured by the BankingMyWay Weekly Mortgage Rate tracker. Here’s a look:

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Description                             This Week                   Last Week

One-Year ARM                       3.824%                        3.946%
Three-Year ARM                     3.927%                        3.759%
Five-Year ARM                       3.292%                        3.379%
15-Year Mortgage                    3.774%                        3.847%
30-Year Mortgage                    4.366%                        4.381%
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The takeaway this week? Now, more than ever, make sure to check out BankingMyWay’s Mortgage Rate Search for the best home loan rates. Week to week, it’s your best bet for finding the best mortgage rate deal possible.

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

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