Mortgage rates fall to new low

The last time mortgage loan rates were this low, Grace Kelly wasn't a princess. If you don't know who Grace Kelly was, google her.

Mortgage rates again fell to a modern-day low this week, as investors favored American bonds over those of other, riskier, countries. This meant that there was more money to lend to Americans, making money less cheap for homeowners to borrow.

The benchmark 30-year fixed-rate mortgage fell 6 basis points this week, to 4.75 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point.

This is the lowest rate for the 30-year fixed in the nearly 25-year history of Bankrate's weekly survey. According to the National Bureau of Economic Research, rates on FHA-insured mortgages averaged 4.71 percent in April 1956. That's the last time mortgage loan rates were lower than now.

The mortgages in this week's survey had an average total of 0.41 discount and origination points. One year ago, the mortgage index was 5.7 percent; four weeks ago, it was 4.95 percent.

The benchmark 15-year fixed-rate mortgage fell 6 basis points, to 4.2 percent. The benchmark 5/1 adjustable-rate mortgage fell 6 basis points, to 4.07 percent. Those are record lows in Bankrate's survey, too. Bankrate has collected rate information on 15-year loans since 1985 and on 5/1 ARMs since the beginning of 2005.

The rate on the 30-year fixed tends to rise and fall with the yield on the 10-year Treasury note. They're not in lockstep, but generally move in the same direction and at around the same pace. But things have been different lately.

The 10-year Treasury has fallen 40 basis points in the last month while the 30-year fixed-rate mortgage has fallen 20 basis points. Some of this disparity probably comes from investors' stronger appetite for ultrasafe Treasury securities instead of merely very safe Fannie Mae and Freddie Mac securities.

But there also are logistical and even psychological barriers in the mortgage industry. "As you get near the 4.5 (percent) handle, it really acts as the new Rubicon that does not want to be crossed," said Brian Koss, executive vice president of Mortgage Network, a lender based in Boston.

Koss said that it's in the best interest of the largest mortgage servicers not to stimulate another refinancing boom because they likely would lose many of the loans that they're profitably servicing. On top of that, the big lenders have redeployed employees to handle mortgage modifications, so their loan origination departments aren't staffed for a refi tsunami.

That's part of the story. Another part: There aren't many people left who can profitably refinance. "In the old days, if you had new all-time lows, you would see a doubling or tripling of volume," Koss said. "Now, you're talking about a 20 percent pickup, maybe 30."

Michael Fratantoni, vice president of economics and research for the Mortgage Bankers Association, said refi applications jumped more than 12 percent last week, "but remain at about half the level seen in the spring of 2009."