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Mortgage rates fall back following Fed

Polyana da Costa

Mortgage rates eased a bit this week, giving borrowers and homebuyers some reprieve after recent spikes pushed rates to their highest levels in more than a year.

30 year fixed rate mortgage 3 month trend

30 year fixed rate mortgage 3 month trend

The benchmark 30-year fixed-rate mortgage fell to 4.12 percent, compared with 4.14 percent last week, according to the Bankrate.com national survey of large lenders. The mortgages in this week's survey had an average total of 0.34 discount and origination points. One year ago, that rate stood at 3.89 percent. Four weeks ago, it was 3.74 percent.

The benchmark 15-year fixed-rate mortgage fell to 3.3 percent this week, compared with 3.32 percent last week. The benchmark 5/1 adjustable-rate mortgage fell to 2.99 percent from 3 percent. The benchmark 30-year fixed-rate jumbo mortgage fell to 4.29 percent from 4.32 percent.

Weekly national mortgage survey

Results of Bankrate.com's June 19, 2013, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
30-year fixed 15-year fixed 5-year ARM
This week's rate: 4.12% 3.3% 2.99%
Change from last week: -0.02 -0.02 -0.01
Monthly payment: $799.19 $1,163.42 $694.76
Change from last week: -$1.92 -$1.61 -$0.89

The Fed has helped keep mortgage rates low through an $85-billion-per-month bond purchase program created to stimulate the economy. Last month, Federal Reserve Chairman Ben Bernanke spooked investors when he told Congress that the Fed could begin to taper the bond purchases "in the next few meetings."

Mortgage rates jumped and had stayed up since then.

Bond purchases will continue for now, but not forever

On Wednesday, the Fed tried to calm the financial markets after its two-day Federal Open Market Committee meeting. In a statement, the Fed says it "will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially."

But the statement also includes hints that the Fed could soon slow the bond purchase program, as the Fed appeared more optimistic about the economic outlook.

"The committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens," the Fed says.

If the labor market improves, the Fed could begin to reduce the bond purchases later this year and potentially end the purchases by mid-2014, Bernanke said during a press conference after the statement was released Wednesday. Nothing is set in stone, he says. "Our purchases are tied to what happens in the economy."

What's next for rates?

How investors interpret the Fed's statement will influence which direction mortgage rates go in the coming days.

"I think the Fed is doing a test run to see how the market reacts," says John Walsh, president of Total Mortgage Services, in Milford, Conn. "We are not on really firm footing at this point yet," Walsh says. "We are still in a fragile spot with the economy, and the jobs market is still not great."

But as the Fed continues to hint it will scale back on asset purchases, rates could climb higher, says Brett Sinnott, director of secondary marketing at CMG Mortgage in San Ramon, Calif.

Could the 30-year fixed reach 5 percent anytime soon? Sinnott says not for now.

"I would not foresee the market hitting 5 percent this year," he says. "A full-point rate movement could easily derail what is still being considered a shaky economy.

Can the housing market and the economy handle higher rates?

The volume of refinance applications has been declining since rates started to rise. But so far, it seems higher rates have not affected the housing market.

"We've seen incredible purchase activity in the last three weeks," says Paul Anastos, president of Mortgage Master in Walpole, Mass. About 70 percent of the applications his company has received in recent weeks were from homebuyers, he says.

"Rates are still incredibly low," he says.

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