MORTGAGE RATES SKYROCKET
Mortgage rates
skyrocketed this week as Wall Street tried to discern the
ever-shifting contours of the Great Bailout.
The benchmark 30-year
fixed-rate mortgage rose 54 basis points to 6.74% according to
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 0.42 discount and origination points. One
year ago, the mortgage index was 6.16 percent four weeks ago, it was
6.49 percent. It was the biggest weekly rise in the Bankrate.com index
in more than 21 years. In April 1987, the benchmark mortgage rate
jumped 86 basis points in one week, from 9.44 percent to 10.3
percent. Between then and now, the biggest one-week increase happened
exactly 10 years ago, when the 30-year jumped 44 basis points, to 6.9
percent.
For banks, one solution
to the problem is to sell their loans, although that has the effect of
lowering values of other banks loans, triggering another round of
selling. The government’s impending purchases of distressed
mortgage-backed securities will undoubtedly help.
It comes down to
unpredictability. When mortgage rates are so volatile, no one can
predict how long borrowers will keep their loans before they refinance
them. Those expectations are being blown out the window. There are no
models out there that are coming even close to predicting how
mortgages will perform.
