Freddie: Fed Moves Could Keep ARM Rates Low

Recent Federal Reserve moves could make adjustable rates more relatively attractive while potentially putting upward pressure on 30-year rates. "In its Sept. 23rd policy statement, the Federal Reserve indicated that it plans to keep its benchmark interest rate exceptionally low for an extended period," said Frank Nothaft, chief economist at Freddie Mac. "This will likely benefit consumers who opt for ARMs, because they are typically tied to shorter-term interest rates." Also in its Sept. 23 policy statement, the Fed extended its mortgage-backed securities purchases, which have helped keep long-term rates low this year, into the first quarter of 2010. It did this without increasing the dollar amount it is authorized to purchase, which potentially cuts the pace at which they are bought by about half (although the Fed has not detailed exactly how it will handle allocating its purchases over that time period). This could put upward pressure on rates, although the Fed has indicated it is monitoring the situation and could always change its policy going forward. Mr. Nothaft could not be reached for comment at press time as to whether he thinks this will affect his earlier prediction that 30-year rates could fall to a record low this year. The Mortgage Bankers Association survey this week, which reflects roughly a week earlier period than the Freddie Mac Primary Mortgage Market Survey, suggests the 30-year rate has already fallen below the psychologically important 5.0% mark. But Freddie's survey said that during the week ended Sept. 24 it found the rate for 30-year FRMs unchanged compared to the week before at 5.04%. It remains significantly lower during the same period last year when it was 6.09%. The average one-year Treasury indexed adjustable-rate mortgage rate dropped to 4.52% from 4.58% the previous week and 5.03% a year ago. Points averaged 0.6 for 15- and 30-year product and for one-year ARMs, and were 0.5 for five-year hybrid Treasury ARMs. The five-year hybrid rate remained at 4.52% in the most recent week. This was significantly lower from a year ago when it was 6.02%. The average 15-year rate was 4.46%, down from 4.47% the previous week and from 5.57% a year ago.