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Rising
The cost of 30-year mortgages has risen a bit, but lenders don't expect the increase to slow sales or refinancings
By Todd Mason
Star-Telegram Staff Writer
Record-low mortgage rates have been the silver lining in the storm clouds gathered over Wall Street. Rates on 30-year mortgage loans in the Fort Worth area dropped below 6 percent.
No more. The yield on 10-year Treasury notes surged in recent days, marking what some economists see as the bottom of this interest-rate cycle. Mortgage rates tend to track the bellwether government security.
Rates jumped from 5.86 percent in the Fort Worth-Dallas area a week ago to 6.11 percent Wednesday, according to Bankrate.com.
But lenders don't see home loans becoming significantly more expensive, or sapping strength from the economy by slowing home sales or mortgage refinancings.
"Even though our rates are a little higher, they're still a good deal," said Judith O. Smith, president of the Fort Worth mortgage group of the same name.
In the absence of inflation, interest rates go up because investors gain more confidence in the stock market and the economy, said Phil Colling, an economist with the Mortgage Bankers Association.
"Don't worry about it," Colling said. "But if you haven't refinanced yet, do it now."
At the height of stock market worries last week, the average 30-year mortgage rates dipped to 6.02 percent in a national survey of lenders conducted by Bankrate.com. It was the lowest rate since 1966.
Meanwhile, the 10-year Treasury yield fell to 3.6 percent last week, its lowest point since August 1958. Government debt is seen as a safe harbor for nervous investors when fear grips the financial markets.
The government security's yield rebounded to 4.03 percent as of closing prices Wednesday. While mortgage rates don't follow the Treasury note in lock step, the two rates demonstrate a strong correlation.
The Treasury yield was too low at 3.6 percent, said Richard K. Green, principal economist for Freddie Mac, which buys mortgages from lenders and packages them for sale to bond investors.
"Now it seems like it's at a reasonable, sustainable level," Green said.
Freddie Mac forecasts that mortgage rates will rise to 6.6 percent or 6.7 percent in 2003. "A year ago, we had a great housing market with interest rates at 6.6 percent," Green said.
Meanwhile, Green said, rising home prices added $2 trillion to American homeowners' aggregate home equity, pushing it to $7.5 trillion, despite a wave of mortgage refinancings that took cash out of homes. Freddie Mac expects the refinancing boom to last into 2004.
Lenders expect another refinancing crush as higher rates prod homeowners to act.
"Don't try to pick the absolute bottom" of the interest-rate cycle, said Chad Bates, president of Legacy Financial Group in Arlington. If refinancing makes sense, there's no point in waiting, Bates said.
But at the same time, expect refinancing to grow more difficult as the months wear on, said David Motley, an executive vice president of Colonial Savings in Fort Worth.
Fannie Mae, another agency that buys and packages home loans, said it will raise fees and tighten standards for refinancing that takes cash out of the home or consolidates some first and second mortgages.
"As mortgage balances increase beyond the amount originally financed, borrowers are three times more likely to default," said Alfred King, a spokesman for Fannie Mae.
While the new rules go into effect in February, Motley said Colonial will adopt them Nov. 1 because of the processing time involved.
"It puts more pressure on property values," Motley said. Borrowers will need a bigger cushion of home equity to consolidate loans or to take cash out.
"The only things that have kept the economy going are the housing market and cash-out refinancings," Motley said.
He expects both sectors to remain strong.
"It's difficult for me to make an argument that interest rates are going to go up significantly," Motley said.
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