Mortgage rates hit an air pocket

Turbulence continues to buffet mortgage rates. Like a plane landing in a thunderstorm, rates go violently up and down, moved by invisible forces.

The benchmark 30-year fixed-rate mortgage fell 41 basis points, to 5.98 percent, according to the Bankrate.com 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 0.38 discount and origination points. One year ago, the mortgage index was 6.19 percent; four weeks ago, it was 6.37 percent.

The benchmark 15-year fixed-rate mortgage fell 39 basis points, to 5.46 percent. The benchmark 5/1 adjustable-rate mortgage skyrocketed for the second week in a row, rising 23 basis points, to 6.44 percent. The 5/1 ARM has risen 72 basis points in two weeks. The benchmark 30-year fixed jumbo loan fell 17 basis points, to 7.43 percent.

Bankrate's survey is a weekly snapshot of what's happening with rates every Wednesday morning. The weekly interval masks the unusual rate gyrations that happen in the meantime. If the rate survey were conducted hourly and plotted on a line chart, it would look like a seismograph during an earthquake. Such volatility was almost unprecedented until this year. But in the last couple of months, it has been commonplace.

"I tell my clients: 'When I tell you that you need to lock in, you need to lock in,'" says Dan Dowling, president of United Mortgage Capital Corp. in Altamonte Springs, Fla. "If you have something that even smells close, like you want it to be, lock the rate. Do not play this market."

Multiple rates in a day

Every morning, Dowling and other brokers get rate sheets from lenders. In more tranquil days, a rate sheet would be good all day. Lately, lenders sometimes update their rate sheets multiple times a day as rates swing up and down.

On Tuesday, the day the Federal Reserve cut short-term interest rates by three-quarters of a percentage point, Dowling got an initial rate sheet late in the morning, and then four more over the next six hours.

"A total of five different rates," he says. "Depending on what time of day you called me, I could have given you five different interest rates."

Back in the old days -- like, last year -- multiple repricings in one day happened occasionally, but they weren't the nearly daily occurrence they have been lately. And rates usually went in the same direction when they changed multiple times. If rates changed in the early afternoon and then in the late afternoon, they went up both times or down both times. That's not the way things are now.

"This was in both directions," Dowling says of Tuesday's wild ride. "It was like good, bad, good, good. It was wacky."

Peter Grabel, a private mortgage banker in Greenwich, Conn., says: "It used to be rates would change once a day, so you felt pretty safe that if you quoted something in the morning, you could lock it in the afternoon. Today we've had three rate changes. It makes things very awkward."

The words that Grabel dreads hearing are, "Let me talk to my wife about it." By the time a client talks to his wife and calls back, there's a good chance rates have changed.

Of course, that change could be in the right direction. Grabel says he has a client who was ready to lock at 6.25 percent. Then Grabel found a better deal, at 5.75 percent. When Grabel proudly called the client with the news, he encountered something unexpected: suspicion. His client thought the news was too good to be true.

"I had a really tough time explaining it," he says.