Mortgage rates fall below 4%

This post comes from Marilyn Lewis at MSN Money.

Mortgage rates broke the historic 4% barrier this week. The average rate for a 30-year fixed-rate home loan fell to 3.94% with an average 0.8 point paid, according to Freddie Mac's Weekly Primary Mortgage Market Survey. (One point is 1% of the loan amount.)

That's the lowest rate Freddie has recorded. "Freddie Mac says the rates are the lowest since its survey began in 1971, and academic research suggests that rates for 30-year mortgages were as low as 4% -- but not any lower -- under a loan program for war veterans in the mid-1940s," says The Wall Street Journal.

Bloomberg BusinessWeek credits "stricter credit standards and the slowing economy" for the dropping rates. Freddie Mac Chief Economist Frank Nothaft pointed to "increasing global economic concerns" and worries that the U.S. recovery is not holding.

• Find the best mortgage rates in your area

Rates drop -- and so do mortgage applications
Rates also fell for 15-year fixed-rate mortgages, an increasingly popular refinancing choice. Rates on 15-year loans have been falling for six consecutive weeks.

Now mortgage buyers are paying an average 3.26% with an additional 0.8 point paid, the Freddie Mac survey found. Freddie is one of the huge, government-run (GSE) mortgage companies that buy mortgages from retail banks. Post continues after video.

Last week, 30-year fixed rates were at 4.01% on average. A year ago they averaged 4.27%, which seemed phenomenally low at the time.

A week ago 15-year fixed-rate mortgages averaged 3.28%. They averaged 3.72% at this time last year.

Despite record low lending rates, however, strict bank lending standards and a lack of equity in their homes prevent most consumers from being able to take advantage of them.

Mortgage purchases fell 4.3% in the week ending Sept. 30, according to the Mortgage Bankers Association's weekly survey of mortgage applications, here at MortgageNewsDaily.co​m.

"What if the 30-year mortgage rate fell below 4% and few people cared?" quips The Journal.

“It seems quite clear that the effects of the lower mortgage rates have been more than offset by the recent stagnation in employment and decline in real incomes,” BusinessWeek says, quoting a note to clients from Paul Dales, a senior U.S. economist at Capital Economics Ltd. in Toronto.

Economic stress is blamed
In fact, given the low prices banks are paying for money, retail mortgage-interest rates should be even lower, The Journal says.

But banks have laid off large numbers of staff, leaving them short-handed and looking ways to keep business manageable: "To manage volumes, they’ll sometimes raise the spreads between their borrowing costs and the rates that are offered to consumers," The Journal writes.

Economists are increasingly articulating their worry about the plight of American consumers. A solid recovery will depend in great part on a revival of consumer spending.

In a prepared statement, Freddie Mac Chief Economist Frank Nothaft credited the drop in mortgage rates to "a sharp drop in 10-year Treasuries early in the week as concerns over a global recession grew."

He also pointed to Federal Reserve Chairman Ben Bernanke's testimony to Congress's Joint Economic Committee on Tuesday in which Bernanke "said the recovery is close to 'faltering' and stressed the need for lawmakers to act."

Writes The Journal:

Eric Rosengren, president of the Federal Reserve Bank of Boston, spoke to the problem facing policy makers’ inability to help consumers benefit from low rates in a speech last week in Sweden. Falling home prices “have disrupted the transmission of monetary policy,” he said, resulting in “a situation where the availability of credit is more important in many cases than the cost of credit.”

Low rates could give more urgency to a recent push by the White House to fix an administration effort that allows homeowners to refinance their mortgages if they owe more than their loans are worth. The program is open to borrowers with loans backed by Fannie Mae and Freddie Mac.

“Clearly getting more money into the hands of homeowners who would spend it could help to fuel GDP growth,” said Mr. Rosengren.

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