Mortgage rates take a tumble again

Mortgage rates fell this week on signs that the housing economy continues to stall and inflation poses little threat.

The benchmark 30-year fixed-rate mortgage fell 7 basis points to 6.42 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 0.36 discount and origination points. One year ago, the mortgage index was 6.31 percent; four weeks ago, it was 6.5 percent.

The benchmark 15-year fixed-rate mortgage fell 6 basis points to 6.1 percent. The benchmark 5/1 adjustable-rate mortgage fell 9 basis points to 6.26 percent.

Pending home sales collapsed in August, according to the National Association of Realtors, which blamed the drop-off more on problems in the mortgage market than on economic fundamentals. The Realtors' pending home sales index is an indicator for what will happen in the next few months in the housing sector. The index is based on pending sales of existing homes -- that is, houses on which an offer has been accepted, but the buyer hasn't closed yet. A sale that was pending in August was likely to be finalized in September or October.

Jumbo squeeze

The August pending home sales index fell 21.5 percent compared with August 2006. It fell 6.5 percent from July. A 6.5 percent drop in one month is big. This one coincided with turmoil in the market for jumbo mortgages, which made home loans of more than $417,000 harder to get in August and September.

"Fewer contracts were being written because of mortgage availability issues," the Realtors' senior economist, Lawrence Yun, says in a news release. He added that "more than 10 percent of sales contracts fell through at the last moment in August, primarily the result of canceled loan commitments." In expensive markets, where more buyers rely on jumbo mortgages, the cancellation rate approached 30 percent, Yun says.

Yun adds that the jumbo squeeze has eased since August and the beginning of September, although jumbo rates are still higher than they would be under normal conditions.