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Mortgages emulate Congress and just sit there

Polyana da Costa

Mortgage rates stayed down this week as investors waited for Congress to reach a budget agreement, end the shutdown and raise the country's debt ceiling.

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 4.39 percent from 4.41 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 0.3 discount and origination points. One year ago, that rate stood at 3.59 percent. Four weeks ago, it was 4.71 percent.

The benchmark 15-year fixed-rate mortgage was 3.47 percent, the same as last week, and the benchmark 5/1 adjustable-rate mortgage fell to 3.34 percent from 3.4 percent. The benchmark 30-year fixed-rate jumbo stayed at 4.58 percent.

Weekly national mortgage survey

Results of Bankrate.com's Oct. 9, 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: 4.39% 3.47% 3.34%
Change from last week: -0.02 N/C -0.06
Monthly payment: $825.28 $1,177.13 $726.27
Change from last week: -$1.95 N/C -$5.47

The low rates continued to attract buyers and refinancers even during the shutdown, lenders say.

"We've seen a nice uptick in applications," says Brett Sinnott, director of secondary marketing for CMG Mortgage in San Ramon, Calif.

The volume of refinance applications increased 3 percent last week from the previous week, according to the Mortgage Bankers Association. The volume of applications from buyers decreased 1 percent.

Many lenders had feared they wouldn't be able to process and close loans until the government reopened, mainly because with closures at the Internal Revenue Service, lenders cannot obtain tax transcripts as they normally do when underwriting loans. But Fannie Mae and Freddie Mac have issued guidelines allowing lenders to obtain the transcripts after the loan closes, after the IRS reopens.

Although some lenders have encountered obstacles and some delays, for the most part, loans are closing as scheduled, mortgage professionals say.

Debt ceiling

Borrowers who can lock in a rate now should do so because rates won't stay quiet forever, Sinnott says. And those who worry about closing delays because of the shutdown should consider locking for an extended period, he adds.

"When the shutdown ceases, we will probably see a rally on the stock market, and that could push rates a little higher," Sinnott says.

But much will depend on whether the government will be able to raise the debt ceiling and avoid default before the Oct. 17 deadline.

How the debt ceiling debacle unfolds could have a much bigger impact on the markets than the current government shutdown, says Bob Walters, chief economist for Quicken Loans.

"I personally think they will get a deal done because if they don't, the effects could be so catastrophic," Walters says. A default's effect on mortgage rates would depend on how investors worldwide respond, he adds.

But at least for now, borrowers don't have to worry about rates spiking, as long as the Federal Reserve remains committed to keeping rates low.

"I don't see rates moving dramatically higher anytime soon. They may edge higher, they may edge lower, but as long as the Fed is where they are today, I think rates (will) stay relatively low," he says.

What Janet Yellen means for mortgage rates

Earlier this year, the Fed said it planned on cutting back soon on the bond-purchasing stimulus program that has helped keep rates near the bottom. That pushed rates up. In the last meeting, the Fed decided to hold off on trimming the program, easing the upward pressure on mortgage rates.

The Federal Open Market Committee is scheduled to meet again at the end of the month.

The nomination of Janet Yellen to succeed Ben Bernanke as Fed chairman appears to be good news for borrowers who hope low mortgage rates stick around a little longer. Yellen, 67, is currently the Fed vice chair.

"Yellen will take a slow and cautious approach to tapering the bond-purchase program known as QE3 (the third round of quantitative easing)," says Paul Edelstein, director of financial economics at IHS Global Insight. "She will push back against the taper crowd so long as fiscal uncertainty threatens the labor market. But she will keep the Fed on its current taper path. Bernanke could begin tapering in December, but it would have to be with Yellen's consent."

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