Mortgages Inch Up From Last Week's Record Lows

Mortgage rates inched up from record lows this week after signs of improvement in the employment market. Borrowers who are eligible to refinance have kept lenders busy as the homeowners try to take advantage of the historically low rates.

The benchmark 30-year fixed-rate mortgage rose 2 basis points this week to 4.14%, according to the national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.32 discount and origination points. One year ago, the mortgage index was 5.23%; four weeks ago, it was 4.18%.

The benchmark 15-year fixed-rate mortgage rose 2 basis points, to 3.36%. The benchmark 5/1 adjustable-rate mortgage rose 3 basis points, to 3.05%. The benchmark 30-year fixed-rate jumbo was unchanged at 4.55%.

Last week, all four of the above loan types -- the 30-year fixed, 15-year fixed, 5/1 ARM and jumbo -- reached record lows in the 26-year history of Bankrate's weekly rate survey.

Bernanke and investors are skeptical of improvements

Mortgage experts expected rates to jump after the January employment report was released last week. The report showed the economy added 243,000 jobs. That's the biggest jobs gain since April. The report was much better than economists had expected, and the unemployment rate fell slightly to 8.3% in January.

Usually, when investors feel more confident about the labor market and the economy, interest rates tend to rise. They didn't rise as much as expected because investors remained skeptical and didn't pull their money out of safer investments such as U.S. Treasuries, as they normally do when positive economic reports are released.

"I didn't see too much optimism on the jobs report," says Brett Sinnott, director of secondary marketing at CMG Mortgage in San Ramon, Calif. "I think rates will stay where they are in the foreseeable future."

Federal Reserve Chairman Ben Bernanke also fueled investors' skepticism during a Senate hearing Tuesday. He says the slightly lower unemployment rate should be interpreted cautiously because it doesn't include the millions of people who have stopped looking for openings or those who work part-time because they can't find full-time jobs.

"More than 40% of the unemployed have been jobless for more than six months, roughly double the fraction during the economic expansion of the previous decade," Bernanke says.

Because of the sluggish labor and housing market and the slow economy, the Fed has pledged to keep the key federal funds rate low until late 2014.

Borrowers take advantage of rates

The Fed's strategy to keep rates low has worked so far, as millions of borrowers seek to refinance their mortgages to grab lower rates.

The volume of mortgage applications increased 7.5% last week compared to a week earlier, according to the Mortgage Bankers Association weekly survey. The majority of those applications, about 80%, are from refinancers.

Bob Moulton, president of Americana Mortgage in Manhasset, N.Y, says two-thirds of the applications he received in January were from refinancers and include borrowers who were waiting for rates to drop further.

"I'm refinancing people who were sitting on the fence and people who refinanced a year, or a year and a half ago with a 5%," he says.

Rates expected to stay low

Moulton says rates should remain low until the economy is "out of the woods."

"The government is still trying to fix the housing market," he says. "Until the housing recovery starts, I don't see how rates could rise."

Based on Bernanke's latest speech, the U.S. housing market is far from recovery.

"Uncertain job prospects along with tight mortgage credit conditions continue to hold back the demand for housing," Bernanke says. "Although low interest rates on conventional mortgages and the drop in home prices in recent years have greatly improved the affordability of housing, both residential sales and construction remain depressed."