By Ian McKendry

WASHINGTON (MNI) – Mortgage rates have hit all-time lows as
concerns over European debt markets and the Federal Reserve’s commitment
to maintain the federal funds rate at “exceptionally low levels”
into 2013 have pushed rates down.

The 30-year fixed-rate mortgage average was 4.15% in the August 18
week, breaking a previous record of 4.17% set November 11, 2010,
Freddie Mac reported Thursday.

“The Federal Reserve’s policy statement last week and ongoing
market concerns over the European debt market carried momentum into this
week allowing all mortgage products in our survey to reach all-time
record lows,” Freddie Mac Chief Economist Frank Nothaft said.

Borrowers have taken advantage of the low
interest rates by refinancing their homes. The Mortgage Bankers
Association refinance index rose 8.0% in the week ending August 12, and
said the share of refinanced mortgage relative to all mortgage activity
increased to 78.8% from 75.6% in the previous week.

Nothaft noted a similar trend for the year, noting “The refinance
share of applications averaged nearly 70% of all mortgage activity in
the first half of this year.”

Freddie Mac released a report earlier in the week that found 95% of
borrowers who refinanced their mortgages in the second quarter opted to
refinance to a fixed rate mortgage. The survey also found that 37% of
those refinancing their 30-year fixed rate mortgage did so to a shorter
term mortgage. It was the highest share of borrowers refinancing to
shorter-term loans since the third quarter of 2003.

While low mortgage rates have spurred a wave of refinancing it has
not translated into new mortgages for new home purchases.

“Purchase application activity fell sharply over the previous week,
likely the result of potential homebuyers hesitant to purchase in this
highly volatile and uncertain environment,” MBA Vice President of
Research Economics Mike Fratantoni said in a statement Wednesday.

The National Association of Realtors reported Thursday that
existing home sales fell 3.5% in the month of July. Chief Economist
Lawrence Yun told reporters prior to the data’s release that
conservative lending standards continue to be one of the biggest
impediments to housing purchases.

Yun said it is “frustrating’ because even though mortgages are at
historic lows and home prices have come down, borrowers are still having
trouble securing loans.

** Market News International Washington Bureau: (202) 371-2121 **

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