Rates continue to drop

Mortgage rates remain anchored to historically low levels. But fewer borrowers are taking advantage.

The benchmark 30-year fixed-rate mortgage fell 1 basis point this week, to 5.07 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 0.38 discount and origination points. One year ago, the mortgage index was 5.29 percent; four weeks ago, it was 5.11 percent.

The benchmark 15-year fixed-rate mortgage rose 2 basis points, to 4.45 percent. The benchmark 5/1 adjustable-rate mortgage fell 1 basis point, to 4.46 percent.

This is the lowest average for the 30-year fixed in 2010. March is shaping up to be the lowest-rate month in the 25-year history of Bankrate's weekly survey, yet mortgage applications are down. In Bankrate's weekly survey, the 30-year fixed averages 5.09 percent this month -- lower than February's record-low 5.14 percent average. Yet, according to the Mortgage Bankers Association, applications declined 1.9 percent last week, after they were essentially flat the week before. Refinancers outnumber purchasers 2 to 1. 

Jeff Lazerson, president of Mortgage Grader, a brokerage in Southern California, said he has some fine deals: a 30-year fixed for 4.625 percent if the borrower pays 1.25 percent in discount points; a 15-year fixed at 3.875 percent for borrowers paying 2 discount points; a jumbo at 5.625 percent. But customers aren't lining up at the door.

He doesn't know why, although he said it doesn't help that Fannie Mae and Freddie Mac are scrutinizing every little thing in each loan file, alienating borrowers and lenders. Lazerson has a client with a steady income who is getting a mortgage at 50 percent loan to value. "It's a super-clean deal," he said. "They're asking him to explain two credit blemishes in 2003 and 2004 and the guy's got like a 750 FICO. That's what we're dealing with."

It's a lament you hear from brokers and loan officers all over. The federal government's policy is to promote responsible homeownership, reduce foreclosures and stimulate home sales, but federally supervised Fannie Mae and Freddie Mac continue to add fees and tighten lending standards, making it more difficult and expensive for consumers to get mortgages.

Another government intervention -- the Federal Reserve's program to buy $1.25 trillion in mortgage-backed securities -- is ending with an unexpected twist. The Fed reaffirmed this week that it will wrap up its mortgage-buying by the end of March. For weeks, the mortgage industry has expected the Fed's withdrawal to be accompanied by a rise in rates. But such an increase hasn't happened, even though the Fed has been tapering off its purchases in recent weeks.

"Debate rages as to whether mortgage rates will rise as a result of this program ending," said Bob Walters, chief economist for Quicken Loans. He adds that "we're seeing a significant number of homeowners looking to refinance, sensing these generationally low rates may be coming to an end."

When rates are at historic lows, it's inevitable that they will rise. The surprise is that the increase hasn't happened already.