83°F
weather icon Clear

Mortgage rates dangle on current U.S. debt doubts

Mortgage rates barely changed this week as investors grew increasingly anxious about the looming threat of a U.S. debt default.

The benchmark 30-year fixed-rate mortgage fell 1 basis point this week, to 4.68 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 0.39 discount and origination points.

One year ago, the mortgage index was 4.74 percent; four weeks ago, it was 4.66 percent.

The benchmark 15-year fixed-rate mortgage remained unchanged, at 3.82 percent. The benchmark 5/1 adjustable-rate mortgage fell 4 basis points, to 3.36 percent.

Debt ceiling

Many investors remain in wait-and-see mode as Congress tries to hatch a budget deal to shrink the deficit and raise the $14.29 trillion debt ceiling. But with 11 days left before the Aug. 2 deadline set by Treasury, they are becoming more nervous about the situation, says Kevin Breeland, general manager of Residential Mortgage of South Carolina in Mount Pleasant, S.C.

There is no question mortgage rates will spike if the United States defaults on its debt, Breeland says, but rates might rise even before the deadline.

“If they are not close to a deal by the end of this week, we’ll start seeing the effect on rates early next week,” Breeland says.

Even if Congress works out a deal in the eleventh hour to avoid default, rates could still spike temporarily, he says.

“This situation is making foreign investors uncomfortable” with the U.S. bond market, he says. Once investors lose confidence and pull out of the bond market it will take a few weeks to rebuild trust and for rates to stabilize, he says.

Band-Aids won’t keep rates down

Reaching a deal and simply raising the debt ceiling without significant cuts in spending won’t be enough to hold rates down, says Brett Sinnott, director of secondary marketing for CMG Mortgage in San Ramon, Calif.

“A lot is going to depend on the scope of the agreement,” Sinnott says. “A little Band-Aid fix may boost investors’ confidence on the short term, but when people realize there was no major fix we’ll see a big falter in confidence.”

When investors lose confidence and pull out of the U.S. bond market, Treasury yields have to be raised to attract investors back. That normally translates into higher mortgage rates.

On Tuesday, President Barack Obama indicated he would support a plan submitted by a bipartisan group of senators, known as the “Gang of Six.”

The plan calls for about $3.7 trillion in cuts over a decade or more. It’s unlikely the plan will be approved without changes, and some fear it would not pass before the Aug. 2 deadline.

Uncertainty

Amid all this uncertainty, mortgage rates have not changed much compared to last week, but that doesn’t mean the mortgage market has remained stable.

Rates are fluctuating constantly throughout the day, says Michael Becker of WCS Funding Group in Lutherville, Md.

“They are up and then the next minute, they are down,” he says. “They are all over the place.”

The volatility frustrates potential borrowers as they shop around for rates.

“Sometimes they don’t understand it,” Becker says. “They’ll get a (quote) in the morning and then when they call back the rate has changed and they’ll say, ‘What happened to rate you gave me earlier?'”

As with others in the mortgage industry, he recommends not taking the risk of an unstable market and locking into a rate as soon as you feel comfortable with it.

Don't miss the big stories. Like us on Facebook.
THE LATEST
7 ways autocomplete can get smarter

Autocomplete is one of the best (or depending on how hastily you push ‘send’ – worst) things in the world. We rely on it so much that Google plans to let us autocomplete whole emails. Here are seven ways predictive input can improve. 1. Recognizing names from previous emails Jakub Kokoszka has a tough name to […]

Movie posters might soon be based on your clicks

You may have thought you left Blockbuster behind, but the basic way we browse movies hasn’t changed all that much. We peruse poster after poster, kind of like walking the aisles of a ‘90s-era video store. That one poster image, meant to appeal to as many people as possible, is often all we see before […]

What I’ll be covering at NAB 2018

The National Association of Broadcasters show kicks off this weekend in Las Vegas.  The show focuses on new and emerging technologies and trends in relation to the media and entertainment industries. As it’s not open to the public, I’ll be at the Las Vegas Convention Center on Saturday, Monday and Wednesday to share some of […]

EXECUTIVE TRAVEL: Forget Strip flash; some prefer lake’s panache

If you get called to a board meeting at Lake Las Vegas, you might want to bring your swimsuit. That’s the term Westin at Lake Las Vegas marketing director Matt Boland uses for upright paddleboard races, one of many team-building exercises offered regularly at the resort.

After $4,700 in live poker career winnings, James Romero, 27, wins nearly $2 million

It was a 15-year celebration of The World Poker Tour at Bellagio for the Five Diamond World Poker Classic. The largest field size in WPT Five Diamond’s history was created when 791 entries were tallied, and it was James Romero, 27, of Portland, Oregon, who won his first WPT title.

Auto electronics at SEMA and AAPEX: A brave new world

The Specialty Equipment Market Association celebrated its 50th annual SEMA show at Las Vegas Convention Center this month by showcasing a car culture of “do-it-yourself” garage mechanics who share a passion for customizing vehicles.