By Agency Reporter

Saturday, 20 Nov 2010

Mortgage rates for 30-year United States loans surged to a three-month high as bond investors grew concerned that the Federal Reserve‘s plan to buy more treasuries may fail to contain borrowing costs.

The rate for a 30-year fixed loan climbed to 4.39 per cent in the week ended on Thursday from a record low 4.17 per cent, Freddie Mac said in a statement. That‘s the highest since the week ended August 19. The average 15-year rate was 3.76 per cent, the McLean, Virginia-based company said.

The $974 that would have covered the monthly payments on a $200,000 mortgage at last week‘s 30-year rate will now support a loan of about $195,000, Bloomberg said on Thursday.

Rates had tumbled from 5.21 per cent in early April to last week‘s lowest level since Freddie Mac began collecting data in 1971.

Bond yields jumped as the start of the Fed‘s second round of debt-buying sparked ”an international and domestic political backlash,” according to the head of securitisation research at Deutsche Bank AG, Steven Abrahams. The US central bank said November 3 that it anticipates purchasing an additional $600bn of Treasuries through the middle of next year.

”The market apparently is discounting either the Fed‘s willingness to spend the full $600bn announced or to sustain the effort beyond June,” Abrahams, who is based in New York, said on Wednesday in a report.

Yield on mortgage securities guaranteed by government- supported Fannie Mae that most affect loan rates soared from as low as 3.27 per cent on November 4 to 3.8 per cent on November 15, according to data compiled by Bloomberg. Yields fell to 3.76 per cent as of 9am today in New York.

Mortgage-bond yields help determine what lenders must charge consumers on home loans to avoid losses when selling the debt, which in turn provides cash for new lending.

The number of US mortgage applications fell 14 per cent in the week ended November 12, a Mortgage Bankers Association index showed. Refinancing fell 17 per cent, the most since early April, and purchase applications dropped 5 percent, the Washington- based group said on Wednesday.

US housing starts fell to a 519,000 annual rate in October, the fewest since a record low reached in April 2009 and down 12 per cent from a revised 588,000 in September, Commerce Department figures showed on Wednesday.

 

Source: Punch