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Fed’s stimulus effort should help keep mortgage rates low

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The typical interest rate on a 30-year home loan rose slightly for the third consecutive week, according to Freddie Mac’s latest survey, but economists expect the Fed’s purchases of U.S. government bonds to keep mortgage costs near record lows in the coming months.

Freddie Mac said lenders it surveyed early this week were offering 30-year fixed-rate mortgages at an average rate of 4.24% with 0.8% of the loan amount in upfront fees. That compared to 4.23% a week earlier and an all-time low of 4.19% in the survey released Oct. 14.

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Lenders were offering 15-year fixed loans, a popular choice for people refinancing their mortgages, at 3.63% with 0.7% in fees, Freddie Mac said, down from 3.66% a week earlier.

The average start rate for a 5-year Treasury-indexed hybrid adjustable-rate mortgage was 3.39% with 0.6% in fees, down from 3.41% in the previous survey and the lowest since Freddie Mac began tracking this type of loan in 2005. The 5-year hybrid ARM has a fixed rate for the first five years and then becomes variable.

The Federal Reserve, aiming to stimulate growth by driving down interest rates and pumping money into the economy, said Wednesday that it would purchase $600 billion in Treasury bonds over the next eight months.

Frank Nothaft, the chief economist at Freddie Mac, said the core price index for personal expenditures, an inflation gauge that is closely followed by the Fed, rose just 1.1% over the 12 months ending in September -- the smallest increase since September 2001.

The yield on the 10-year Treasury bond, a key indicator for mortgage rate trends, dropped from 2.62% on Wednesday to 2.47% in early trading Thursday, its lowest level in 10 days.

Still, the low rates are of little benefit to the many borrowers whose earnings and credit ratings have been buffeted by the deep recession, or to the homeowners who can’t refinance because their home values have fallen so far.

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With lending standards tight as a drum, the Fed’s actions amount to ‘pushing on a string,’ complained Laguna Niguel mortgage broker Jeff Lazerson. ‘The better answer would be to loosen up on underwriting standards a little bit.’

-- E. Scott Reckard

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