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Mortgage Rates Ease Back Down After Surprise Jump

Credit: The average 30-year, fixed-rate loan drops to 6.31%. The rise last week to 6.77% had scared off some borrowers.


After moving up dramatically last week, home loan rates have fallen back in recent days, erasing most of the unexpected run-up that rattled consumers and the mortgage industry.

This week's rate cut by the Federal Reserve Board and a rebound in many financial markets helped stabilize and lower mortgage rates, industry officials said. On Friday, the average rate on a 30-year, fixed-rate mortgage with an upfront fee of 2% of the loan amount was 6.31%, according to a daily survey by Mortgage News Co. of Morro Bay. A week ago, the rate had jumped to 6.77% amid worldwide financial turmoil.

"The drops this week have been fairly gradual," said Earl Peattie, president of Mortgage News. "A lot of people in the refi market sort of have a second chance."

Mortgage borrowers and lenders were stunned by last week's leap in home loan rates, which had been falling to new lows over the last couple of months. Many loans are now sold to investors in packages of securities. But buyers for those securities grew scarce last week amid growing financial concerns. Lenders were then forced to hike mortgage rates to attract more investors.

The jump in mortgage rates forced many homeowners to postpone efforts to refinance their mortgages and scared off some potential buyers seeking a purchase loan. Countrywide Home Loans Inc., for example, saw a noticeable decline in the number of customer telephone calls and new applications. Activity on the company's Internet site dropped by two-thirds, he said

"People just froze," said Cameron King, executive vice president of Calabasas-based Countrywide, one of the nation's largest mortgage lenders.

But as rates have fallen back, "we are starting to see more activity," Cameron said. "People are feeling more comfortable."

Many of the consumers who have returned to lenders this week are now insisting on locking in existing rates to ensure against future instability. In the previous months, many consumers had grown accustomed to falling rates and had gone without locking in their loan rates, said Richard Siordia, a mortgage banker at National Pacific Mortgage.

"We kind of learned our lesson," said Siordia, whose customers are now locking in rates. "We don't want to run into the same scenario we ran into last week."


Rates Rise and Fall

Home loan rates have gradually declines in recent days after spiking up late last week. Average rates on fixed, 30-year loan with two points*.

October 16, Friday: 6.31%

* Based on a daily survey of the 15 largest lenders in Southern California.

* Source: Mortgage News

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