Mortgage rates tick up after Fed stands pat on interest rate

By: JournalNow Staff | THE ASSOCIATED PRESS
Published: September 18, 2008

NEW YORK

Homeowners rushed to take advantage of last week's drop in interest rates after the government's takeover of Fannie Mae and Freddie Mac, but rates are rising again on investor fears about the eroding conditions in financial markets.

A mini-refinance boom started last Thursday but ended early Monday, said Pava Leyrer, the president of Heritage National Mortgage in Michigan. The average rate on a 30-year, fixed-rate mortgage was 6.14 percent yesterday, up from 6.02 percent last week after the government bailed out Fannie and Freddie, though still below last month's 6.65 percent, according to HSH Associates.

"We've had three rate changes in an afternoon, and not for the good either," Leyrer said yesterday.

She said that investors aren't happy with the Federal Reserve's decision Tuesday to not cut a key interest rate in the face of recent market chaos. The central bank kept the federal-funds rate unchanged at 2 percent even after the demise of Lehman Brothers, the forced sale of Merrill Lynch, and steep declines in the stock markets.

Last week, applications by homeowners wanting to refinance their mortgages jumped 88 percent, according to the Mortgage Bankers Association. Refinances accounted for nearly 52 percent of all application activity, up from 36 percent the previous week, the trade group said.

The volume of purchase applications also edged up last week by 5 percent.

But even though the number of applications soared last week, the approval rates are likely to be low because appraisals for many homes are coming in close to or below the amount of the existing mortgages, said Ritch Workman, a co-owner of Workman Mortgage in Melbourne, Fla.

Even if homeowners have 10 percent to 15 percent equity in a house, they will have to pay for private mortgage insurance, which will probably eclipse any savings from a refinance, Workman said.

Nationwide, home prices fell a record 15.4 in the second quarter, according to Standard & Poor's/Case-Shiller's U.S. National Home Price Index. In many once-hot markets, such as Las Vegas, Los Angeles and Miami, prices have fallen 25 percent or more, making it nearly impossible to refinance into a more manageable home loan.