Expect Mortgage Rates to Rise Now

Follow the Dollar

 

The Federal Reserve yesterday plans to remove its support from the  financial marketplace. The Fed purchased $300 billion of Treasury securities and currently anticipates another $1.25 trillion of agency MBS and about $175 billion of agency debt securities at the end of March. In other words, the Fed plans a soft exit and is on schedule to complete the program end of March. The expectation is that investors are now ready to step in and fill the vacuum and the markets will begin a return to normalcy.

You can take the view that this is a nod towards the ability of the economy to lift itself. But the timing of this move has increased nervousness for housing. The Fed will be exiting the mortgage market just time for the spring/summer home buying season. So the question is how much will rates rise to accommodate new investors for the risk of buying mortgages that have lots of uncertainty built in. After all, job loss is still on the decline and shot sales, foreclosures and a lot of pain will have to be reflected in the price for investors to step up. Eveyones understandably nervous.

The Fed's asset purchases kept rates artificially low. They replaced the banks and insurance comppanies as well as sovereign nation funds and others. These private investors are a little spooked. Yes, they will buy, but they will be looking for deals and higher rates to compensate for the risk. This will certainly force mortgage rates higher.

The Mortgage Bankers Association notes: The Fed remains unlikely to raise rates anytime soon.  However, they have clearly indicated that they are going to end their MBS purchase program, as well as ending a number of other liquidity facilities begun during the financial crisis.  Yields on mortgage securities will need to increase to get private investors back into the market once the Fed stops its purchases.
1. We expect that mortgage rates will rise by about a percentage point by the end of the year, to a little over 6 percent, primarily as a result of the Fed ending their purchases.
2. Mortgage originations will fall to $1.3 trillion in 2010 from an estimated $2.1 trillion in 2009.
3. Purchase originations will be essentially flat at $745 billion, as home prices stabilize, and home sales increase. 
4. Refinance originations will fall by more than 60 percent to $529 billion as mortgage rates rise through the year.(Via the MBAA) 

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Expect Rates to Rise Now

 Follow the Money

The Federal Reserve yesterday plans to remove its support from the  financial marketplace. The Fed purchased $300 billion of Treasury securities and currently anticipates another $1.25 trillion of agency MBS and about $175 billion of agency debt securities at the end of March. In other words, the Fed plans a soft exit and is on schedule to complete the program end of March. The expectation is that investors are now ready to step in and fill the vacuum and the markets will begin a return to normalcy.

You can take the view that this is a nod towards the ability of the economy to lift itself. But the timing of this move has increased nervousness for housing. The Fed will be exiting the mortgage market just time for the spring/summer home buying season. So the question is how much will rates rise to accommodate new investors for the risk of buying mortgages that have lots of uncertainty built in. After all, job loss is still on the decline and shot sales, foreclosures and a lot of pain will have to be reflected in the price for investors to step up. Eveyones understandably nervous.

Will Rates Rise

The Fed's asset purchases kept rates artificially low. They replaced the banks and insurance comppanies as well as sovereign nation funds and others. These private investors are a little spooked. Yes, they will buy, but they will be looking for deals and higher rates to compensate for the risk. This will certainly force mortgage rates higher.

The Mortgage Bankers Association notes: The Fed remains unlikely to raise rates anytime soon.  However, they have clearly indicated that they are going to end their MBS purchase program, as well as ending a number of other liquidity facilities begun during the financial crisis. Yields on mortgage securities will need to increase to get private investors back into the market once the Fed stops its purchases.
1. We expect that mortgage rates will rise by about a percentage point by the end of the year, to a little over 6 percent, primarily as a result of the Fed ending their purchases.
2. Mortgage originations will fall to $1.3 trillion in 2010 from an estimated $2.1 trillion in 2009.
3. Purchase originations will be essentially flat at $745 billion, as home prices stabilize, and home sales increase. 
4. Refinance originations will fall by more than 60 percent to $529 billion as mortgage rates rise through the year.(Via the MBAA) 

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Case Shiller Slowly Getting Better

Case Shiller
Improving

The S&P Case-Shiller U.S. National Home Price Index posted a 2.5% decrease from a year earlier, a significant easing from the 19%, 15% and 8.7% declines in the rest of 2009.

The indexes showed prices in 10 major metropolitan areas fell 2.4% in December from a year earlier, while the index for 20 major metropolitan areas dropped 3.1%.
Prices are down 5.3% in the past year, compared with a 7.3% decline in October, S&P said. A year ago, prices had tumbled 18.2%. The index shows prices in the 20 cities are down 32.6% from the peak. Prices are the same as they were in late 2003.

The housing market is definitely in better shape than it was this time last year, as
the pace of deterioration has stabilized for now. However, the rate of improvement seen during the summer of 2009 has not been sustained, says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. In the most recent months we are seeing fewer and fewer MSAs reporting monthly gains in prices. (Via S&P)
 
Now We Wait

Since 2000, the area traditionally defined as the Sun Belt experienced the largest run-up in prices and since has been the hardest hit. Government effort to support programs to place a floor under home prices house prices led to small price increases over the Summer. The Fed program to support the secondary markets will end and that is a sure increase in interest rates. The question is what happens to prices as these programs end over the next 6 months.

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Good News! MBAA New Forebearance Program

Bridge Loan For The Unemployed

Mortgage Bankers Association has developed a  new forbearance program that would allow qualified borrowers who lose their jobs to stay in their homes while they look for a job.  The MBAA proposal would have loan servicers  lower mortgage payment for up to nine months while a homeowner looked for work. This would allow for a great deal of stability in the lives of those who lose their jobs and their homes simultaneously.

Most of the new home loss problems now are not sub prime or irresponsible homeowners or lenders...its the economy. The  The vast majority of new distressed borrowers we are seeing involve the loss of income," said John A. Courson, MBA's President and CEO.  Courson goes on to say: This program is designed to buy those borrowers time to find a new job, after which they could hopefully qualify for a loan modification.

How It Works
Borrowers would be evaluated based on certain assumptions:
1. Borrowers will be reemployed within nine months of losing a job
2. The borrower would be a new hire at  at 75% of the borrower's previous salary.
3. The borrower would be reviewed every three months regarding income and employment for a total of 9 months, the length of the program.
4. Once reemployed, the borrower would be evaluated for a loan modification under the HAMP program.

The reason for the 9 month program is based on studys showing that most unemployed are out of work for an average of 7 months. People in this position cant qualify for a loan mod, so this is sort of a bridge program to catch those who fall through the qualification cracks of existing programs.

MBAA stresses this is a voluntary program and is hoping the Treasury will create special access to funds for this program to work.

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Mortgage Bankers Weekly Update : Mortgage Applications Decrease

Mortgage Bankers Association for the week of  2/24/2010

Market Composite Index: (loan application volume) decreased 8.5 percent on a seasonally adjusted basis from one week earlier

Refinance Index: decreased 8.9 percent from the previous week. The seasonally adjusted Purchase Index decreased 7.3 percent from one week earlier, putting the index at its lowest level since May 1997.
 
Purchase Index: decreased 3.6 percent compared with the previous week and was 13.4 percent lower than the same week one year ago.

Refinance Share of Mortgage Activity: decreased to 68.1 percent of total applications from 69.3 percent the previous week.

Arm Share:   increased to 4.7 percent from 4.4 percent of total applications from the previous week.  

MBA outlook: (Excerpted from mbaa.org)
The economy is growing again. 4Q growth of 2009 exceeded expectations due to strong growth in business inventories. However inventory replacement is a short lived spurt, unless consumers buy. Weakness in the job market and a fragile recovery are likely to keep consumers from spending on big ticket items like houses and cars.

Existing home sales fell back in December and new home builders are not upbeat. The Fed remains unlikely to raise rates, however, they are going to end their MBS purchase program. This will certainly cause a rise in interest rates as the marketplace demands higher rates to compensate for risk. 

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Freddie Mac Weekly Mortgage Update

30-Year Fixed-Rate Mortgage Over 5 Percent

 

30-year fixed-rate mortgage: Averaged 5.05 percent with an average 0.7 point for the week ending February 25, 2010, up from last week when it averaged 4.93 percent. Last year at this time, the 30-year FRM averaged 5.07 percent.

The 15-year fixed-rate mortgage: Averaged 4.40 percent with an average 0.7 point , up from last week when it averaged 4.33 percent. A year ago at this time, the 15-year FRM averaged 4.68 percent.

Five-year indexed hybrid adjustable-rate mortgages ARMs: Aeraged 4.16 percent this week, with an average 0.6 point, up from last week when it averaged 4.12 percent. A year ago, the 5-year ARM averaged 5.06 percent.

One-year Treasury-indexed ARMs: Averaged 4.15 percent this week with an average 0.6 point, down from last week when it averaged 4.23 percent. At this time last year, the 1-year ARM averaged 4.81 percent.

Freddie Sayz

Interest rates for 30-year fixed mortgages followed long-term bond yields higher and rose above 5 percent this week amid a mixed set of economic data reports said Frank Nothaft, Freddie Mac vice president and chief economist. For instance, the January producer price index jumped well above the market consensus, but the consumer price index remained subdued and consumer confidence declined to the lowest level since April 2009, according to the Conference Board . 

There were also varying reports as to the current state of the housing market. The S&P/Case-Shiller® national home price index rose for the third consecutive quarter in the fourth quarter, albeit at a slower rate, and the 20 city composite index showed an increase in December 2009 for the seventh month in a row; six metropolitan areas experienced positive year over year growth, compared to four in November. New home sales, however, unexpectedly slowed in January to the smallest pace since records began in 1963, and the supply of homes at the current sales rate rose to 9.1 months, the most since May 2009. 

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Mortgage Bankers Weekly Update : Mortgage Applications Decrease

Mortgage Bankers Association for the week of 2/17/2010

Market Composite Index: (loan application volume) decreased 2.1 percent on a seasonally adjusted basis from one week earlier.

Refinance Index: decreased 1.2 percent from the previous week and the seasonally adjusted Purchase Index decreased 4.0 percent from one week earlier.

Purchase Index: increased 1.0 percent compared with the previous week and was 18.4 percent lower than the same week one year ago.

Refinance Share of Mortgage Activity: decreased to 69.3 percent of total applications from 69.7 percent the previous week.

Arm Share: decreased to 4.4 percent from 4.5 percent of total applications from the previous week.

MBA outlook: (Excerpted from mbaa.org)

The delinquency rate for mortgage loans on one-to-four-unit residential properties fell to a seasonally adjusted rate of 9.47 percent of all loans outstanding as of the end of the fourth quarter of 2009, down 17 basis points from the third quarter of 2009, and up 159 basis points from one year ago, according to the Mortgage Bankers Associations (MBA) National Delinquency Survey.

We are likely seeing the beginning of the end of the unprecedented wave of mortgage delinquencies and foreclosures that started with the subprime defaults in early 2007, continued with the meltdown of the California and Florida housing markets due to overbuilding and the weak loan underwriting that supported that overbuilding, and culminated with a recession that saw 8.5 million people lose their jobs, said Jay Brinkmann, MBAs chief economist.

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The Politics of Housing

The Bedrock Asset That Was

Residential property is our single largest asset and mortgage debt, when paid, constitutes the largest financial assets in most economies. The great American housing boom caused home prices to outpace rental growth. A historic first. It seems clear that the housing boom involved dramatic increases in housing prices relative to housing rent.

In 2008 alone, the United States government allocated over $900 billion to special loans and rescues related to the US housing bubble, with over half going to the quasi-government agencies of Fannie Mae, Freddie Mac, and the

Federal Housing Administration. At the end of 2009,in December (when we werent looking) the Treasury Department announced it would be providing Fannie Mae and Freddie Mac unlimited financial support for the next three years despite $400 billion in losses.

The Housing and Economic Recovery Act of 2008 (HERA) gave FHFA the authority to set performance goals for Fannie and Freddie. The goals set minimum percentages of all housing units financed by mortgages acquired by them in a given year. For 2010 and 2011, the FHFA proposal set three single-family owner-occupied goals and a single-family refinancing goal.

FHA Requirements
1. Single-family housing: that 27% of the total number of mortgages purchased by Fannie and Freddie be of low income family housing, defined low-income not exceeding 80% of the area median income.
2. Single-family housing: required that 8% of the Fannie and Freddie purchases be of very low-income family mortgages, defined as family income that does not exceed 50% of the area median income.
3. Single-family housing: required that 13% of the total number of mortgages purchased by Fannie and Freddie would be originated in low-income areas.

For 2010 and 2011, 25% of Fannie and Freddie purchases of refinanced mortgages must be low-income family loans. The FHA insists it will not undertake uneconomic or high-risk activities in support of the goals

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Reginal Banks In Trouble

COP, established by Congress in 2008 to oversee the $700 billion Troubled Asset Relief Program (TARP), is concerned about our small banks. They are the lenders to about half of all small business and about 3000 small bank are exposed to commercial real estate. COP expects $200 to $300 billion in losses from commercial real estate loans for small banks. These smaller regional banks are over exposed to commercial loans and may not be able to absorb the deluge of bad paper. This will affect us all, since fewer loans to small businesses limits employment growth. COP notes that small business was responsible for about 1/3of all jobs created in the last two economic expansions.

Here Is The Problem

Brian Olasov, managing director with McKenna Long & Aldridge LLP explains it this way: Currently, many banks are faced with the following scenario: A bank holds a $1 million loan, which it carries on its books at $950,000. Because of the prevailing bid-ask gap in the marketplace, a buyer comes along with an offer of $500,000. The bank would like to remove the loan from its books, but to do so would require it to recognize a loss of $450,000. If I do that with respect to a bunch of loans on my portfolio, I become under capitalized according to the regulators (Via National Real Estate Investor)

If There is a Solution

Lennar Corp, a major developer, did a deal with the FDIC, a distressed-land transaction with an unpaid balance of about $3 billion. The FDIC will keep 60% of the loans and Lennar will own 40%. The portfolio contains distressed loans from 20 failed banks. Lennar picked up its share at about 40 cents on the dollar.

Between 2010 and 2014, about $1.4 trillion in commercial real estate loans will reach the end of their terms. Nearly half are underwater. many of these loans are 5 year ARMs that will reset. After the real-estate slump of the early 1990s, Lennar picked up distressed assets at bargain prices and parlayed bad paper into good money.

Tishman Speir, a big NY firm handed the keys back to the banks for 56,000 apartment units in Manhattan and another 2.6 billion dollar deal went back to Barclays. They are not for sale, the banks will hold and manage those properties. Big money is beginning to look past the real estate collapse and buy. with enough faith to hold on for better times.

Further proof of a recovery. The banks may be reluctant to loan, but private equity is beginning to stir. Obviously, buying at what they think is a bottom, private equity firms such as Lennar and various REITS are stepping up. We may be in the trough for a long time, but at least some smart money investors think this is the time to buy.

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REITs: Where Are The Good Deals

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REITs: Where Are The Good Deals

Real-estate investment trusts sold $24 billion in new stock last year, raising to profit from commercial-property distress by picking up high-quality real estate at bargain prices. But they are having trouble finding deals. Tishman Spier, recently handed the keys back to the banks. Peter Cooper village and Stuyvesant Town comprise 56,000 units. Another 2.6 billion dollar deal was handed back to Barclays and they have no intention of putting these properties up at bargain basement prices. They are looking past the problem and are waiting for better days.

So, REITs bought only $4.6 billion of property in 2009, a 67% decline from the previous year, according to research firm Real Capital Analytics. They cant get prime properties on the cheap. After dumping so much residential property on the market, driving prices down and gathering much evil eye for doing that, they learned a lesson.

Why

Commercial property prices some 35% to 50% off their peaks, most banks are keeping their best assets off the market. Many REIT expected the number of distressed buildings forced to market to surge as owners defaulted and lenders foreclosed. But while the number of problem loans has been growing, so far this hasn't translated into many fire sales. Finally there are some signs of an end to the equity drubbing taken by commercial real-estate owners.

From a cash-flow perspective, REITs still face declining rents and occupancy levels and equity evaporation. The REITs raised so much money waiting for the banks to hand off quality properties on the cheap and instead, they are going to manage and hold property. This may not be the generational opportunity the REITs expected. but I think it speaks volumes about how the world has changed for the better. Suddenly, there is a view that better times are coming.

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Freddie Mac Weekly Update

30-year fixed-rate mortgage: Averaged 4.97 percent with an average 0.7 point for the week ending February 11, 2010, down from last week when it averaged 5.01 percent. Last year at this time, the 30-year FRM averaged 5.16 percent.

The 15-year fixed-rate mortgage: Averaged 4.34 percent with an average 0.6 point, down from last week when it averaged 4.40 percent. A year ago at this time, the 15-year FRM averaged 4.81 percent.

Five-year indexed hybrid adjustable-rate mortgages ARMs: Averaged 4.19 percent this week, with an average 0.6 point, down from last week when it averaged 4.27 percent. A year ago, the 5-year ARM averaged 5.23 percent.

One-year Treasury-indexed ARMs: Averaged 4.33 percent this week with an average 0.6 point, up from last week when it averaged 4.22 percent. At this time last year, the 1-year ARM averaged 4.94 percent.

Freddie Sayz

Interest rates on 30-year fixed-rate mortgages are below 5 percent for a third week this year, which helps a number of homeowners to refinance their existing housing debt said Frank Nothaft, Freddie Mac vice president and chief economist. In mid-June of last year, for example, 30-year fixed-mortgage rates topped nearly 5.6 percent. Currently, the monthly payments would be almost $77 per month lower on a $200,000 loan balance. In all, more than two out of three mortgage applications were for refinance transactions over the first six weeks of 2010, according to the Mortgage Bankers Association

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Mortgage Bankers Association for the week of 2/10/2010

Market Composite Index: (loan application volume) decreased 1.2 percent on a seasonally adjusted basis from one week earlier

Refinance Index: increased 1.4 percent from the previous week and the seasonally adjusted Purchase Index decreased 7.0 percent from one week earlier.
Purchase Index: The four week moving average is up 1.3 percent

Refinance Share of Mortgage Activity: decreased 1.1 percent compared with the previous week and was 7.5 percent lower than the same week one year ago.

Arm Share: remained unchanged at 4.5 percent of total applications from the previous week.

MBA outlook: (Excerpted from mbaa.org)

The December job report showed an 85,000 drop in employment and an unemployment rate steady at 10 percent, but only because many discouraged workers have stopped looking for jobs . It may set the tone for a slow recovery.

Dips in new and pending home sales in November and purchase applications in December show that home sales are likely to adjust downward in the months ahead, even though the tax credit was extended. New construction remains weak.

We anticipate that mortgage rates will rise by about a percentage point through the year, to end at 6.1 percent, as a result of widening mortgage spreads and an increase in Treasury rates.

MBA projects that mortgage originations will decrease from about $2.1 trillion in 2009 to about $1.3 trillion in 2010. MBA forecasts that purchase originations will increase from $742 billion in 2009 to $776 billion in 2010, while refinance originations are projected to fall from $1.372 trillion to $502 billion.

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Commercial Property Money Becoming Available

Lenders may be beginning to open up as they see some signs of an economy that is stabilizing. Data released by the Mortgage Bankers Association (MBA) notes commercial and multifamily mortgage originations rose 12% in the fourth quarter year over year. Loan originations in the fourth quarter also were 15% higher than in the third quarter. life insurance companies posted a whopping 112% increase in loan originations in the fourth quarter of 2009 compared with the fourth quarter of 2008, reports MBA. if you look to the chart, you can see releative stabilization in the last five quarters.

To be sure, commercial and multifamily originations remain at low levels. The Commercial/Multifamily Mortgage Bankers Originations Index, fell 79% over the last two years.The Commercial/Multifamily Mortgage Bankers Originations Index, for example, fell 79% over a two-year period ending in the third quarter of 2009.

And more to come: According to Foresight Analytics. For banks with $100 million in assets to $100 billion, commercial real estate is the largest part of their loan portfolio. Relatively little single-family. The regional banks are the sweet spot for bad commercial paper, with most small and midsized regional banks about to take the brunt of the storm.

Most of the problem loans were made between 2003 and 2007 and will be looking to refi or face possible default. They are expected to face the markets and the default rate should level off around 2011, Forsight analyitics thinks we are about 60% through the loss process.

Money from large insurers and REITs seem to be picking up the slack as the banks still remain on the sidelines, preferring to rebuild their balance sheets rather than lend into a recession. Wherever the money is coming from, it is looking up

What it means for buyers and sellers of small properties and residential homes is that loan availability may be more likely from larger banks rather than the regionals as they brace for the onslaught of bad paper expected to crest in late 2010 or 2011.

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Green Home Trends

The key to mainstreaming green homes is to make sure that consumers understand the value of green upgrades — how cost-effective energy efficiency can be in the long run. Consumers want homes that are environmentally friendly and home values should reflect the increased savings.

Better Homes and Gardens

Recent poll results of 2,342 people who plan to purchase or do a major home improvement in 2010 show (numbers have been rounded):

• 2% of consumers are planning to have high-efficiency heating and cooling in their next home
• 3% are planning to have high-efficiency appliances
• 3% will have geo-thermal heat
• 5% said energy-efficient heating and cooling will be more important to them
• 6% said Energy Star appliances will be more important

Appraising Green

Appraisals need to better reflect the value added to energy efficient green upgrades. Legislation is pending which will require the consideration of any renewable energy sources, or energy-efficiency or energy-conserving improvements. Appraisers will tell you they have been considering green improvements for 15 years, typically, double paned windows, insulation and solar hot water heaters. The value normally attributed is the installation cost. But that is just the beginning of the direct savings to the new owner. The ongoing savings of operating a greener home is not being reflected in the appraisal and yet it can be significant when compared to a home that isn’t energy efficient.

To reflect true value buyers need to recognize the increase savings when comparing homes. Appraisers will tell you that when the energy cost savings can be documented, home buyers are more willing to pay a premium. They understand the lower monthly cost of ownership and better resale value.

Green Marketing Incentives

Most state energy and public utilities offer incentives, rebates and tax breaks for energy efficient upgrades. Realtors should suggest that sellers take advantage of these incentives. Consumers clearly want greener homes and agencies offering rebates can document the projected savings. This can be a powerful sales incentive in a market where value is king.

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Home Price Trends: 2010

Mortgage Rates: Peeking Into The Future
Follow the ten year bond

When bond yields drop, so do mortgage rates. Conversely, when yields rise, so go mortgage rates. In mid-December,

the 10-year bond yield was just over 2%, The 10-year bond yield fell now stands at 3.57%. Afraid that rapidly rising rates will sink the housing recovery, the government began to buy back its own debt, up to $300 billion of long-term Treasurys stimulate demand. A 1.57% short term move is quite a spike, Especially in the face of the Feds decision to keep interest rates low to float the economy through this rough patch.

Housing Price is Improving

Banks and the FHA and Freddie Mac continued to tighten standards on residential loans and yet the housing markets continue to improve. Pending home sales, a leading indicator of existing home sales, increased 1.0 percent to 96.6 from 95.6 in November, and remains 10.9 percent above December 2008 ( Via NAR).

Since bottoming out in in June, home prices have seen upticks and sales have lifted off of the deep trough lows. Goldman Sachs estimates that Govt stimulus has lifted home prices by about 5%. Moodys now thinks that home prices are now in line with rent ratios and fairly priced, about 3.5% over valued.

The Vs and The Ws
Momentum

To be sure, there are those who see large declines ahead, given another that 6 million homes are expected to foreclose in the next two years and we have a sizable, shadow inventory just waiting to come to market. In fact, foreclosure filings increased by 14% in December.

But job loss is now almost negligible now and the economy is expected to continue growth. All of this is good for housing, even thought momentum is likely to slow as the Govt steps back from the pump.

Commercial real estate, which has seen declines of 30-50%, is the next big wave of asset destruction. Tishman Speir recently handed keys back to the banks for more than 56,000 apartments in New York City.

Curious though, REITs were expecting to pick up good buys of distressed assets as owners walk away, but they are finding few good deals. The Vanguard REIT index is up 53% for the year and has dropped back about 10% year to date. Perhaps the banks are holding onto the prime assets and looking forward to better days, when property starts to pick up. A look at the 2010 may not exactly be the power house turn around year we hoped for, but it looks like our still wobbly feet will stand on firmer ground in the near future in spite of some really horrible events coming our way.

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Freddie Mac Weekly Update

Long Term Mortgage Rates Remain Stable and Low

30-year fixed-rate mortgage: Averaged 5.01 percent with an average 0.7 point for the week ending February 4, 2010, up from last week when it averaged 4.98 percent. Last year at this time, the 30-year FRM averaged 5.25 percent.

The 15-year fixed-rate mortgage: Averaged 4.40 percent with an average 0.7 point, up slightly from last week when it averaged 4.39 percent. A year ago at this time, the 15-year FRM averaged 4.92 percent.

Five-year indexed hybrid adjustable-rate mortgages ARMs: Averaged 4.27 percent this week, with an average 0.6 point, up from last week when it averaged 4.25 percent. A year ago, the 5-year ARM averaged 5.26 percent.

One-year Treasury-indexed ARMs: Averaged 4.22 percent this week with an average 0.5 point, down from last week when it averaged 4.29 percent. At this time last year, the 1-year ARM averaged 4.92 percent.

Freddie Sayz

Mortgage rates remained relatively stable for a second week amid news of a strengthening housing market, said Frank Nothaft, Freddie Mac vice president and chief economist. Residential fixed investment rose for two consecutive quarters over the last half of 2009 following a steady quarterly decline since the beginning of 2006. Pending existing home sales rebounded by 1 percent in December from a record drop in November that was due in part to the original expiration of the homebuyer tax credit, according the National Association of Realtors . More recently mortgage applications for home purchases jumped 10 percent at the end of January, according to figures from the Mortgage Bankers Association .

Even more encouraging news came from the Federal Reserves Senior Loan Officer Opinion Survey , which reported that banks have generally stopped tightening standards on most types of loans in the fourth quarter of 2009, with commercial real estate as the exception. However, banks have yet to unwind the tightening that occurred over the last two years. Moreover, substantially fewer banks expected credit quality to deteriorate over the coming year.

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