Mortgage Rates rise

from online.wsj.com
REAL ESTATE
Mortgage Rates Near a Year High
By RUTH SIMON and JAMES R. HAGERTYJuly 23, 2008; Page C14

Home-mortgage rates are nearing their highest levels in a year, adding to pressures on the already weak housing market.

Rates on conforming 30-year fixed-rate mortgages rose by nearly 0.40 percentage point in the past week to an average of 6.71%, according to HSH Associates in Pompton Plains, N.J. Rates on jumbo loans, which are too big to be eligible for purchase by Fannie Mae or Freddie Mac, currently average 7.84%.

The higher rates are making it more difficult for borrowers to refinance and putting another crimp on weak home sales. "It's a tough market and rates going up isn't helping it," said Steve Walsh, a mortgage broker in Scottsdale, Ariz.

Mortgage rates typically move in line with rates on 10-year Treasurys. Treasury rates have risen, but so has the spread between rates on 30-year mortgages and 10-year Treasurys, said Nicholas Strand, a mortgage strategist at Barclays Capital.

Banks set their interest rates on mortgages based on demand for those loans from investors, including Fannie Mae and Freddie Mac. When demand is weaker, they must offer investors a higher interest rate.

Walter Schmidt, a senior vice president at FTN Financial Capital Markets in Chicago, said the latest increase largely reflects fears that Fannie Mae and Freddie Mac wouldn't be able to buy as many mortgages in the months ahead as they have recently. The two companies are the biggest buyers of mortgages and related securities. Both are facing heavy losses on defaults, and investors believe they probably will have to raise large amounts of capital to cope with those losses.

Freddie added to jitters last week by saying it might sell some mortgage securities to reduce capital needs. And some smaller Asian banks have been selling mortgage securities, said Arthur Frank, a director at Deutsche Bank Securities in New York.

Can you say credit crunch?