Mortgage rates remain unchanged

Mortgage rates didn't budge at all this week.

The benchmark 30-year, fixed-rate mortgage remained at 5.15 percent, according to the Bankrate.com national survey of large lenders. The mortgages in this week's survey had an average total of 0.44 discount and origination points. One year ago, the mortgage index was 5.34 percent; four weeks ago, it was 5.23 percent.

The benchmark 15-year, fixed-rate mortgage fell 3 basis points, to 4.52 percent. A basis point is one one-hundredth of a percentage point. The benchmark 5/1 adjustable-rate mortgage also stayed the same at 4.56 percent.

Mortgage rates have been remarkably stable this year, varying by about one-eighth of a percentage point from the highest rate of the year (5.26 percent on Jan. 6) to the lowest (5.13 percent on Jan. 27). The Federal Reserve is considered to be mostly responsible for this rate tranquility, because it has been buying most of the mortgage-backed securities that have been issued in the last year.

But the Fed plans to stop buying mortgage-backed securities by the end of March. Eventually, when the economy is recovering well, the Fed will have to start raising interest rates. Sometime after that, it most likely will have to sell those mortgage-backed securities.

The Fed's chairman, Ben Bernanke, gave some hints about that process in written testimony to the House Financial Services Committee. He gave himself a lot of wiggle room. He described in general terms what the Fed might do, but not when, other than to say that short-term rates will be kept low "for an extended period."

Eight times a year, the Fed's monetary policy committee meets to consider what to do about short-term interest rates. The Fed always has focused on its target for the federal funds rate, which is what banks charge one another for overnight loans. But now the central bank has another tool. For the past 16 months, the Fed has been paying interest on banks' excess reserves. If the Fed raises that rate, banks will have an incentive to park cash at the Fed instead of lending it to consumers and businesses. Bernanke said that by using this tool, the Fed "will be able to put significant upward pressure on all short-term interest rates, as banks will not supply short-term funds to the money markets at rates significantly below what they can earn by holding reserves at the Federal Reserve Banks."

Bernanke outlined a couple of other steps the Fed can take when it's time to drain some of the excess cash sloshing around in the banking system. The central bank could sell securities (such as Treasury notes) to banks and promise to buy them back later. And it could offer "term deposits" to banks -- in essence, certificates of deposit in which the bank stows money in a savings account operated by the Fed.

When will this happen, and in what order? Bernanke doesn't know, and if he did, he wouldn't tell you. "The sequencing of steps and the combination of tools that the Federal Reserve uses as it exits from its currently very accommodative policy stance will depend on economic and financial developments," he said.

He added, though, that one of the Fed's last steps will be to sell mortgage-backed securities. That, he said, won't happen until "at least until after policy tightening has gotten under way and the economy is clearly in a sustainable recovery."

If you're in the market for a mortgage or refinance, you can look for the best interest rate by searching Bankrate's rate tables.