Government Shutdown Slows Application Process

By Neil J Leitereg

Fixed mortgage rates fell for the third consecutive week.  The federal government's shutdown and ongoing recovery concerns, particularly the Fed's decision to continue its bond-buying stimulus program, are attributed to the recent decline of key mortgage loans.  The drop in rates comes after averages spiked by more than a percentage point since early May.

The average rate on a 30-year fixed mortgage loan dropped 0.10 percentage point this week, according to the latest survey from mortgage buyer Freddie Mac.  After trending at 4.57 percent in early September, the average rate on a 30-year fixed is now at 4.22 percent - a difference of 0.35 percentage point month-over-month and its lowest mark since June 20.  Still, the average is considerably higher than it was at this time last year, when the 30-year fixed was tending at 3.36 percent.

The average rate on a 15-year fixed loan also dipped for the third consecutive week.  The current average is at 3.29 percent - a difference of 0.08 percentage point week-over-week and a 0.30 percentage point month-over-month.  A year ago, the average on a 15-year fixed was 2.69 percent.

There was moderate change with the hybrid adjustable-rate mortgages over the last week.  The five-year ARM registered a slight drop, falling to 3.03 percent from 3.07 percent.  The average rate on a one-year ARM remained at 3.28 percent week-over-week.

Mortgage rates previously spiked in July due to speculation that the Federal Reserve would curb its bond-purchase program, massive stimulus policies involving $85 million worth of Treasury notes and mortgage-backed securities.  However, the recent relief is a result of indications from the Federal Reserve that it would maintain its bond-buying program at its current levels until employment numbers improved, which should push mortgage rates down in the future.

Also influencing rates is the current government stoppage, which has impacted the amount of mortgage applications that are being processed.  Rates hovering near historic lows have kept hoe buyers interested, but the shutdown has slowed the ability of lenders looking to confirm borrowers' incomes and identities.

"With the onset of the federal government shutdown and declining consumer confidence, fixed mortgage rates fell for the third consecutive week," Frank E. Nothaft, Freddie Mac vice president and chief economist, said in a statement.  "Consumer sentiment fell for the second month in a row in September to its lowest reading since April, according to the University of Michigan.  Moreover, a recent Bloomberg survey of professional forecasters suggests that a partial federal shutdown lasting one week would shave 0.1 percentage points off of GDP growth in the fourth quarter and even more if the shutdown lasts longer."

The number of mortgage applications submitted showed a decrease this week after a two-week uptick.

Don't expect to see much of a change over the next week.  In the latest Mortgage Rate Trend Index by Bankrate.com, analysts were split on whether rates would trend downward or stay the same of the next week.

"There is a lot going on right now that can impact interest rates both higher and lower," opined FBC Mortgage planner Jim Sahnger.  "However, economic numbers continue to be lackluster.  Uncertainty will keep the favorable rates we have in check."

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