Americans seeking mortgages aren’t getting the full benefit of record-low yields on Treasurys and government-supported mortgage bonds, blunting U.S. efforts to curb the housing crisis.
While the average rate on a 30-year fixed-rate mortgage fell to 5.18 percent last week from 6.47 percent in October, according to Mortgage Bankers Association data, the historical relationship between home loans and mortgage bonds shows rates should be at least half a percentage point lower. Though the U.S. is paying nothing to borrow in some cases, homebuyers are paying about $730 more a year than they would otherwise on a $200,000 mortgage.
The demise of lenders, including Countrywide Financial Corp. of Calabasas, Calif., and Seattle- based Washington Mutual Inc., reduced competition as refinancings soar. At the same time, surviving mortgage banks face a credit crunch that limits their lending ability, industry officials say.
After the Fed’s Nov. 25 announcement boosted mortgage-bond prices and Treasury yields tumbled, the average rate on a 30-year fixed-rate loan fell to the lowest since June 2003, according to Mortgage Bankers Association surveys, which cover borrowers with good credit and 20 percent down payments.
The drop spurred a flood of loan applications from homeowners to refinance their loans, causing the mortgage trade group’s index measuring such activity to rise to 4,156 in the week ended Dec. 12 from 1,254 for the period ended Nov. 21.
“Lenders have raised their prices over the last few weeks because of capacity concerns amid all this additional business,” said Brian Simon, chief operating officer at Freedom Mortgage Corp.
