Mortgage rates flat, borrowers avoid ARMs

Mortgage rates remained largely unchanged this week, and borrowers continue to desert adjustable-rate home loans.

The benchmark 30-year fixed-rate mortgage rose 1 basis point, to 6.28 percent, the Bankrate.com national survey of large lenders shows. A basis point is one-hundredth of 1 percentage point.

The mortgages in this week's survey had an average total of 0.26 discount and origination points.

One year ago, the mortgage index was 6.67 percent; four weeks ago, it was 6.25 percent.

The benchmark 15-year, fixed-rate mortgage rose 1 basis point, to 6 percent.

The benchmark 5/1 adjustable-rate mortgage rose 1 basis point, to 6.13 percent.

Mortgage rates snooze

There wasn't any economic news this week that was momentous enough to disturb the slumber of 30-year mortgage rates, which have been snoozing in a narrow range for weeks.

In the last month, the 30-year rate has varied from a low of 6.25 percent to a high of 6.31 percent.

A couple of alarms are set for the next week that might rouse mortgage rates.

The employment report for April will be released Friday.

A surprisingly strong showing could send mortgage rates higher, and a weaker-than-expected result could cause mortgage rates to drop.

On May 9, the Federal Reserve's rate-setting committee meets.

The panel is expected to leave short-term interest rates alone.

Investors will pay attention to the Fed's economic outlook, and mortgage rates could go up or down accordingly.

Subprime woes' contribution

So, today's relatively low rates tell only part of the story. Another chapter of the tale concerns subprime loans for people with shaky credit.

Subprime lenders made a lot of dumb funding decisions in 2005 and 2006, and those mistakes reached critical mass early this year, when millions of borrowers fell behind on their payments.

A few big subprime lenders, such as New Century Financial, sought bankruptcy protection.

In response to this year's subprime mortgage meltdown, subprime lenders made their loan criteria stricter.

As a result, fewer people qualify for subprime loans. Most subprime mortgages are adjustable-rate loans, so a reduction in subprime lending translates into fewer ARMs overall.

The subprime debacle is eating into home sales, too, says David Lereah, the chief economist for the National Association of Realtors.

The association's pending home sales index fell 4.9 percent from February to March.

Lereah blames much of it on what he calls "a decline in subprime lending and tighter lending standards."

Finally, the rate on a 5/1 ARM simply isn't low enough to tempt many people.

This week, the average rate on a 5/1 ARM is 15 basis points lower than the rate on a 30-year fixed. A year ago, the difference was 35 basis points. Unsurprisingly, the ARM share then was a lot higher, at 28.5 percent.