Mortgage Rates Dip, Thanks to Stock Sell-Off

Mortgage rates fell this week, nearing the record low the weekly survey set at the beginning of October.

The benchmark 30-year fixed-rate mortgage fell to 3.54% from 3.57%, according to the Bankrate.com national survey of large lenders. The mortgages in this week's survey had an average total of 0.39 discount and origination points. One year ago, the mortgage index stood at 4.24%; four weeks ago, it was 3.62%.

The benchmark 15-year fixed-rate mortgage fell to 2.87% from 2.88%. The benchmark 5/1 adjustable-rate mortgage was unchanged at 2.72%.

Weekly National Mortgage Survey

Results of Bankrate.com's Nov. 14, 2012, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:

If you're in the market for a mortgage right now, you can thank stock traders for serving up lower mortgage rates this week. Since cresting at 13,600 last month, the Dow Jones industrial average has tumbled more than 900 points.

Your retirement account might be worse for the wear, but there's nothing like a good stock sell-off to hammer mortgage rates lower, says Kevin Cavin, senior vice president and mortgage strategist for Sterne Agee, a brokerage firm based in Birmingham, Ala.

"Growth is not expected to be high, and we've got this fiscal cliff issue, which creates a lot of uncertainty among the investor base, so they want to remain in very high-quality, safe investments, and that tends to be government bonds," Cavin says.

As demand for government bonds picks up, prices rise and rates fall. And because mortgage rates track government bonds, particularly 10-year Treasuries, closely, that's driving mortgage rates lower, Cavin says.

Mortgage Brokers Swamped

Taking advantage of those rates may be easier said than done, though. After a brief dip thanks to Superstorm Sandy, mortgage originations increased 12.6% over last week, according to the Mortgage Bankers Association.

The high volume of mortgage demand means many brokers have about as much business as they can handle at the moment, says Don Frommeyer, senior vice president at Amtrust Mortgage Funding in Indianapolis and president of the National Association of Mortgage Brokers.

"Business is actually better than it's been over the last three years. There's a lot of interest right now in purchases, a lot of interest in streamlines and refinances ... and rates being down is, I'm sure, something that's helping generate that business," Frommeyer says. "Mortgage originators are operating at capacity."

Normally, the end of the year is a time when originations slow down, Frommeyer says, but after sitting on the sidelines and waiting for rates to hit bottom, many borrowers seem to have found a greater sense of urgency about locking in.

That jibes with what Stew Larsen, executive vice president of mortgage banking at Bank of the West, sees. Larsen says the volume of mortgage applications has risen 51% since the same time last year, and that's putting strain on the ability of his staff to keep up.

"It has come in a pretty large wave. We've had to work a lot of overtime," Larsen says. "We are locking rates at 60 days and getting loans closed in less than that, so I would say that, on par, we're doing fine. I'm not proud of service at this point. It is tough, it is difficult, but we're managing customer expectations."

Government continues to push, pull rates

While the stock market may be driving down rates in the short term, Uncle Sam has an effect on mortgage rates these days, and not always for the better. Sure, the Federal Reserve has made headlines with a program to buy mortgage-backed securities on the open market and push down rates, but that's not the whole story, says Larsen.

"You have the Treasury and the Federal Reserve that are doing everything they can to keep rates down and keep spurring the housing market," Larsen says. "And then you have Fannie and Freddie, who are essentially government entities, that are raising their guarantee fees. And while this doesn't make the headlines, it certainly is adding, and will continue to add, upward pressure on interest rates."

Ultimately, Fannie Mae and Freddie Mac will keep raising rates gradually until they're high enough that private companies can take over their role of turning mortgage loans into securities that can be traded on the open market, Larsen says.

That may be good for taxpayers, who will no longer have to bear the risk of guaranteeing the vast majority of mortgage loans, but it's not so great for borrowers, who will ultimately see their rates go up, he says.

"I don't know that the average consumer understands what this will mean in terms of cost to get financing," he says.