Conforming Rates Up While Jumbos Decline, Narrowing Spread

Interest rates rising on the more popular 30-year conforming fixed-rate mortgage and 30-year Federal Housing Administration-insured loan from record lows one week ago resulted in a 12.3% decline in mortgage applications for the week ended Dec. 14, according to the Mortgage Bankers Association. But rates for jumbos fell, narrowing the gap between the two products to just 23 basis points.

“Despite the Federal Reserve’s announcement last week that it would purchase an additional $45 billion in Treasury securities per month as part of its continuing quantitative easing effort, rates increased in the second half of the week,” said Mike Fratantoni, MBA’s vice president of research and economics. “As a result, refinance applications dropped sharply to the lowest level in over a month.”

Yesterday, yields on 10-year Treasury notes hit their highest point in seven weeks as negotiations to avoid the fiscal cliff continued.

The Refinance Index decreased 14% from the previous week and is now at its lowest level since the first week of November. The seasonally adjusted Purchase Index decreased 5% from one week earlier, but on an unadjusted basis is 9% higher than the same week in 2011. The market share of refi apps fell back to 83% from 84%, as the number of HARP refinance applications fell to 25% from 29% for the prior week.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased by three basis points from the previous week to 3.5%. The average contract interest rate for 30-year FHA-insured loans increased two basis points to 3.34%.

Bucking the trend was the rate for 30-year FRMs with jumbo loan balances, which dropped four basis points to its all-time record low of 3.73%.

The average contract interest rate for 15-year FRMs hit its all-time low, falling two basis points to 2.83%. The rate for the 5/1 ARM was down two basis points to 2.61%.