According to a survey by Freddie Mac, U.S. fixed rate mortgages rose this week. The National average for a 30-year fixed mortgage was 6.04% on Feb. 21, up from 5.72% on Feb. 14. The Freddie Mac survey showed a rate of 5.69% on Jan. 17, the report that preceded the Federal Reserve Bank’s emergency 75 basis point easing on Jan. 22. The Fed has eased its Fed Funds rate (the rate banks charge each other) by 125 basis points (1.25%) in an eight day period in January.
If you were wondering how banks would make up the $400 billion (according to some estimates) in write downs related to the subprime debacle, increasing the rate you charge for loans while the rate you are charged drops precipitously is a good start.
CBS Market Watch quoted a Freddie Mac official as stating that adjustable rate mortgages have dropped in comparison to fixed rates since the beginning of the year. The official goes on to say that as the spread widens, we could see an increase in the popularity of adjustable rate mortgages.
While all adjustable rate mortgages are not necessarily the scary kind that has led to the massive foreclosures we have seen in recent quarters and will continue to see as the housing market continues to slump, you would think that given what has gone on in the market that people would avoid them.
