U.S. Mortgage Rates Up and Down

Long-term mortgage rates dropped in the week ending August 30, 2007, according to finance company Freddie Mac. Their weekly Primary Mortgage Market Survey® was released Thursday.

"Interest rates on conforming long-term fixed-rate mortgages declined slightly, while rates on one-year adjustable rate mortgages increased by about a quarter of a percent," said Frank Nothaft, Freddie Mac vice president and chief economist. "The increase in ARM rates is consistent with movement of the yields on short-term Treasury securities, which have exhibited higher volatility recently due to market uncertainties."

This week's survey indicates 30-year fixed mortgage rates averaged 6.45 percent, a drop from last week's average of 6.52 percent. Last year at this time, the 30-year fixed-rate mortgage averaged 6.44 percent.

Fixed mortgage rates for 15-year terms averaged 6.12 percent, a decrease from last week's average of 6.18. A year ago, the 15-year fixed-rate mortgage averaged 6.14 percent.

Averages for Treasury-indexed adjustable-rate mortgages (ARMs) bucked the trend and increased this week. Five-year ARMs averaged 6.35 percent, up slightly from last week's average of 6.34 percent. At this time last year, the five-year ARM also averaged 6.11 percent.

One-year ARMs averaged 5.84 percent this week, a big jump from last week's average of 5.60 percent. Last year, the one-year ARM averaged 5.59 percent.

Freddie Mac said that to obtain these rates lenders charged an average 0.5-point fee for fixed-rate mortgages. Lenders charged a 0.6-point fee for five-year ARMs, and a 0.8-point fee for one-year ARMs.

"In other news, new home sales defied consensus expectations and rose in July to 870 thousand units, led by a 22 percent increase in the Western region," said Nothaft. "Existing home sales fell, however, though by less than the market had forecasted, to 5.75 million units, with the decline limited to the Midwest region."

Freddie Mac is a mortgage finance company established by Congress in 1970. The company buys mortgages and mortgage-related securities and packages them to sell to investors or to hold in its own portfolio. They release their summary of average mortgage rates weekly.

Mortgage Market Woes: How Did We Get Here?

This year has been a year of ups and downs for the housing market. In our continuing series, we chronicle news affecting the housing market and its major players.

Subprime collapse. Credit crunch. Stock market craziness. Even the most astute industry analysts and insiders are confused and shocked with how quickly and thoroughly the economy has felt the tremors this summer.

For all of us looking at headlines and feeling only a vague sense of anxiety and befuddlement, we take a look back. How did we get here?

Greenspan and the Housing Bubble

In 2001, the economy was stifled and stilted after the dot-com bust. To stimulate the economy, the Federal Reserve Bank Chair Alan Greenspan lowered interest rates to unheard-of lows. Money became cheap and immediately available. Lenders were ready and eager to lend money to homeowners and business owners alike, and offered the funds at extremely low rates.

What about risk? Every time someone borrows money, whether it's for a family home or a multibillion dollar firm, there's always risk involved. That's the entire basis of lending, whether from banks, credit agencies, or other groups. But with the slashed interest rate, cheap money was everywhere. This led to a growing complacency about risk. Running into trouble paying back a loan? Just get another one. Getting deeper into debt? There's plenty of money to be had, so have no fear.

Housing Bubble

Today, people are blaming Greenspan's interest rate policies for bringing on the biggest housing bubble in national history. What defines a bubble?

For years the housing market only moved up. With money easy to obtain (even for folks with less than ideal credit) new homes and buildings exploded into being. Home prices continued to rise, because the demand was there and the belief that prices would continue to rise was there.

This rapid rise of real estate values soon outgrew reality. They reached unsustainable levels relative to incomes and other economic elements. That's the definition of a housing bubble. These bubbles historically are followed by severe price decreases (a "crash"). Many homeowners are left holding negative equity, meaning a mortgage debt higher than the actual, current value of the property.

Subprime borrowers, those that received money despite their lower credit ratings, were the first hit. The strange and often unfair loans they received became too much to bear as housing values decreased. They couldn't make payments, and entered loan default in droves.

Beyond the Housing Market

So how did these events result in giant companies declaring bankruptcy? Or the crazy rollercoaster ride the stock market has taken this summer? Why are banks across the world desperately trying to restore confidence in increasingly shaky global economies?

It's much more complicated than blaming Greenspan, as some pundits and angry analysts have done. Interest rate movement is only part of the story. What could play a bigger and more crucial role in this economic decline is the very nature of Wall Street. Built into the global web of economic movement are a shockingly unstable and confusing set of financial instruments, known as "structured finance." They've become the basis of markets worldwide. And they're in trouble.

For the rest of the story, read Part Two of this article - Tomorrow

Mortgage Woes: Action from the Fed

This year has been a year of ups and downs for the housing market. In our continuing series, we chronicle news affecting the housing market and its major players.

First the Federal Reserve injected cash into the economy in a international concerted effort to increase market confidence and lending ability. Now the Fed has taken another dramatic step to prevent and respond to a growing credit crunch and market instability.

On Friday the Fed announced a half-percentage point cut in its discount rate on loans to banks. The announcement came with a carefully crafted statement as the Fed noted their actions were taken to prevent risk to U.S. business growth.

Federal Reserve Chairman Ben Bernanke said that incoming data suggests the economy is continuing to expand at a moderate pace, but "the Federal Open Market Committee judges that the downside risks to growth have increased appreciably"

"Financial market conditions have deteriorated and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward," said Bernanke. The announcement also included the Fed's intention to continue monitoring the situation. They are "prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets."

What does this change mean? The interest rate the Fed charges to make direct loans to banks is now 5.75 percent, down from 6.25 percent. Unchanged, however, is the more important federal funds rate, which has stayed firm at 5.25 percent for more than a year.

The federal funds rate covers all loans that banks make to each other on a short-term basis. It affects credit cards, home equity lines of credit, car loans and other consumer loan rates. It's much more critical from a national economy standpoint: this rate helps determine interest rates such as bank's prime lending rates. Many industry folks believe if the financial market crisis worsens, the Fed will finally cut this rate.

The move by the Fed last week was alternately lauded and criticized. Many industry analysts say that the massive infusion of cash into the world's central banks earlier this month did not sufficiently calm investors. Instead, the markets are still in turmoil as investors are worried about what companies will next announce money problems, and what hedge funds will go under. This has led to an increasing tightness with credit by lenders and others (the "credit crunch").

This interest rate cut, though largely symbolic compared to a potential cut in the federal funds rate, will give another vote of confidence to markets and the economy, both desperately in need of the jolt. Criticism of the effort revolves around the desire for a federal funds rate cut. Industry professionals may get this wish after the central bank's next scheduled meeting of Sept. 18. The growing consensus is that the Fed will cut the federal funds rate by at least a quarter of a percentage point.

U.S. Mortgage Rates Drop After Lower Treasury Yields, Fed Rate Cut

Mortgage rates dropped across the board in the week ending August 23, 2007, according to finance company Freddie Mac. Their weekly Primary Mortgage Market Survey® was released Thursday.

"Interest rates on conforming long-term fixed-rate mortgages and one-year adjustable rate mortgages trended down by about one-tenth of a percent in the past week," said Frank Nothaft, Freddie Mac vice president and chief economist. "This is as a result of yields on Treasury securities coming down, and the Fed's decision to cut the discount rate by half a percent to 5.75 percent last Friday."

This week's survey indicates 30-year fixed mortgage rates averaged 6.52 percent, a drop from last week's average of 6.62 percent. Last year at this time, the 30-year fixed-rate mortgage averaged 6.48 percent.

Fixed mortgage rates for 15-year terms averaged 6.18 percent, a plunge from last week's average of 6.30. A year ago, the 15-year fixed-rate mortgage averaged 6.18 percent.

Averages for Treasury-indexed adjustable-rate mortgages (ARMs) also dropped this week. Five-year ARMs averaged 6.34 percent this week, down slightly from last week's average of 6.35 percent. At this time last year, the five-year ARM also averaged 6.14 percent.

One-year ARMs averaged 5.60 percent this week, an decrease from last week's average of 5.67 percent. Last year, the one-year ARM averaged 5.60 percent.
Freddie Mac said that to obtain these rates lenders charged an average 0.4-point fee for 30-year fixed-rate mortgages. Lenders charged a 0.5-point fee for 15-year fixed-rate mortgages. ARMs included a 0.6-point fee.

"Economic indicators released in the past week reflect slowing housing activity in July," said Nothaft. "Last month's housing starts dropped to the lowest level since January 1997 at an annualized pace of 1.38 million units, while one-unit housing starts experienced the fourth consecutive month of decline. Building permits also fell to the lowest level in nearly 11 years, and the number of one-unit permits issued was at the lowest since June 1995."

Freddie Mac is a mortgage finance company established by Congress in 1970. The company buys mortgages and mortgage-related securities and packages them to sell to investors or to hold in its own portfolio. They release their summary of average mortgage rates weekly.

Mortgage Market Woes: Countrywide Stumbles

This year has been a year of ups and downs for the housing market. In our continuing series, we chronicle news affecting the housing market and its major players.

The roster of companies succumbing to serious financial problems keeps growing.

Countrywide Financial Corp., the nation's largest mortgage lender and the originator of 17 percent of the mortgages in the U.S., is having trouble raising the capital needed to continue operations. Last week, the company tapped into an $11.5 billion line of credit issued by a group of banks in order to shore up liquidity.

The past few months have seen a whirlwind series of troubling events in the mortgage realm, and Countrywide is no exception. The company's predicament came about quickly and has shocked many industry analysts.

Founded in 1969, Countrywide has gained a reputation for efficient and smart lending. They expanded over the years into banking and insurance. This diversification made many industry experts feel secure in the company's future during the market's downfall. But last month, the pinch began.

Countrywide makes money offering prime mortgages. But looking closer reveals that Countrywide relies heavily on short-term financing to fund new mortgages and conduct company operations (including paying salaries). With the mortgage market in trouble, and an increasing credit crunch developing, the company is having problems borrowing the money they need for this short-term financing.

The impact of Countrywide's announcement this week immediately hit the stock market. The company's stock price began the year at $42 a share. On Thursday, it finished at $20. Investors and analysts are growing increasingly worried and skeptical about the company's future.

If the company ultimately goes under, some analysts predict, the effects could be catastrophic. The existing anxiety across the country and the world's markets could be ramped up with the demise of the biggest mortgage lender in the U.S.

For these reasons, and more, many industry experts and watchers are watching Countrywide anxiously as a sign of what's to come in the wider mortgage industry, and the greater economy.

For ARM Loans Set to Go Up, Preparation is Your Best Defense

If you have taken out an adjustable rate mortgage in the past several years, the news looming on the horizon about forthcoming rate increases could not have escaped your attention. It is predicted that some $1.5 trillion in adjustable rate loans are due to reset in the very near future. The current rate of mortgage defaults is hovering around 4%-5% and is expected to double by mid 2008. We are all aware that the Fed had been moving short term rates in only one direction, higher and while long term rates are not controlled directly by the Fed, they certainly have a strong influence on their direction. Given the current liquidity crisis rippling through Wall Street, as well as the global markets, it is assumed that the Feds next move may be to take a neutral or a declining position on rates to stave off any further economic impact of these market gyrations. However based on current market conditions, one may reasonably presume their adjustable rate loan will increase in the neighborhood of 1.5% at the first adjustment. On a $300,000 mortgage this will result in an increase in payment of approximately $279 per month, this is what is referred to in the mortgage industry as payment shock. It may seem like a relatively small amount, yet it is significant enough that you need to plan and prepare for it. So exactly what should you do?

The first thought you have may be to refinance, but how long you anticipate remaining in your home will determine whether or not it is worth while option to consider. If you anticipate wanting or needing to move within a period of 5 years or less then refinancing may only make sense if you could obtain a "no closing cost mortgage" at a rate close to or lower than the rate at your ARMs scheduled adjustment. While it is likely at the first adjustment on your ARM, your rate will go up, it is not clear that it will continue to go up after that. Therefore you may be better off, if you have a short term expectation of ownership, to simply absorb the rate increase until the next sequence of rate decreases by the Fed, at which time you could logically refinance into more attractive fixed rate terms. The costs of refinancing are significant and typically in the range of 2-3% of the loan amount, so until fixed rates are at a level where they are low enough for these expenses to be a reasonable trade off, you'll want to consider only a "no point no fee refinance" option and then only if the rate is close to or less than the rate of your ARM after the scheduled adjustment.

If you are not in a position to refinance, then how should you manage the burden of payment shock? First, simply knowing that it is coming is a big step in preparing for it. One option would be to scale back on your expenses in an amount equivalent to the payment increase. Good places to start looking for expenses to shave would be entertainment (including eliminating cable or satellite services), eating out, vacations, club memberships. Next examine utilities, such as converting to more conservation in your energy usage, checking your phone bill for both long distance and local coverage savings you may not be taking advantage of, eliminating any land line expenses which you may not truly need. Also you may want to examine any insurance premiums which could be reduced by increasing your deductibles. This could pertain to your homeowners, auto as well as your medical coverage (assuming you are not covered by your employer).

Other more drastic efforts could be taken such as having a non-working spouse or family member could get a part-time job or the primary wage earner could get a second job if possible. Lastly if you feel that the rate and payment increase is simply more than you will be able to handle, you want to contact your mortgage lender right away and let them know you are in trouble. Start the lines of communication early because the sooner you get your lender involved, the more options they will be able to offer to help you prepare. Whatever you do, do not wait until the 11th hour when you are already delinquent and have damaged your credit. Believe it or not your lender may well be your best ally in this situation because the last thing they want is to have to take your home, have it on their books and to have to sell it off themselves. Lastly you could consider contacting a successful real estate agent with a proven track record in your neighborhood and have them sell your home for you. Hopefully you will not sell at a loss as this could produce a problem for you and your lender if you put little or nothing down and have no equity in the home. If you are upside down on the loan (that is you have negative equity) you should plan on receiving a 1099 from your lender for this difference and it will likely be treated as income to you for tax purposes. So the objective is to start planning now so you can carefully consider all of your options and not have to make a rushed, hurried decision when that fateful adjustment date actually arrives.

The information contained on this website is provided as a supplemental educational resource. Readers having legal or tax questions are urged to obtain advice from their professional legal or tax advisors. While the aforementioned information has been collected from a variety of sources deemed reliable, it is not guaranteed and should be independently verified.

Mortgage Market Woes: The Fed's Response

This year has been a year of ups and downs for the housing market. In our continuing series, we chronicle news affecting the housing market and its major players.

On August 10 and August 13, central banks in key countries injected funds into their respective banking systems. The Federal Reserve injected a combined $92 billion into the federal banking system. Simultaneously, the Europeans added around 203 billion euros and the Japanese 600 billion yen. Smaller amounts have come from the central banks of Australia, Hong Kong, and Canda. This is the first time that American, European and Japanese central banks have taken action together since the aftermath of 9/11.

The goal was a coordinated effort to increase liquidity and stabilize the foreign exchange rate. Underneath this monetary need was a need to reassure global markets about the availabity of credit in the wake of fears stemming from the subprime collapse that has led to the beginnings of a severe credit crunch.

What does injecting cash into world banks accomplish?

• Reinstating lending: Injecting funds in the country’s cash supply means large banks and broker-dealers can confidently begin lending between one another again. This process was disrupted due a major change: "re-pricing of risk." Many economists say that risk has been inappropriately priced during our recent housing booms and lending craze. This was a major factor in the subprime mortgage explosion, where less-than-ideal borrowers were accepted by lenders without enough regard to the risk represented.

• Limiting effects of subprime implosion: The impact of the re-pricing of risk was first felt in a narrow segment of the economy – the subprime market. Risky borrowers delivered on a potential for defaulted loans, and the dominoes fell. It spread quickly from there to firms and funds dealing with debt. Now it's spread to a more general cross-section of the economy. Experts say the effects are still somewhat limited, and the Fed's efforts, combined with other world banks, will help keep the effects limited.

• Restoring market confidence: The purview of the Fed is beyond day-to-day stock market action. But their funds were an active effort to stave off a global financial crisis. This leads to more confidence, leading to positive market responses. More market volatility can be expected, but experts say that the probability of larger economic pain is lessened due to the central bank’s actions.

• Helping global economic stability: European and Japanese involvement in this funding of central banks is another thing that will stabilize markets and head off further damage, according to analysts. A remarkable development in risk and money investment over the past decades is the commingling of money worldwide. Global markets are strong, but are tied with the flow of money and risk in the U.S. So this global effort to reinstate market confidence will be crucial.

In the short-term future, the Federal Reserve and other central banks remain on alert to, watching the markets and gauging whether more funds should be infused into the economy. Their goal now and in the future is to ensure fallout from the subprime collapse stays limited.

U.S. Mortgage Rates Rise Despite Non-Prime Market Woes

Fixed-rate mortgage rates dropped in the week ending August 16, 2007, according to finance company Freddie Mac. Their weekly Primary Mortgage Market Survey® was released Thursday.

"Interest rates on prime conforming fixed-rate mortgages ticked up a little in the past week, in line with 10-year Treasury rates movements and retracing part of last week's decline," said Frank Nothaft, Freddie Mac vice president and chief economist. "Problems in the non-prime mortgage market where funds are expensive and hard-to-get have not affected the prime conforming market."

This week's survey indicates 30 year fixed mortgage rates averaged 6.62 percent, a rise from last week's average of 6.59 percent. Last year at this time, the 30-year fixed-rate mortgage averaged 6.52 percent.

Fixed mortgage rates for 15-year terms averaged 6.30 percent, a jump from last week's average of 6.25. A year ago, the 15-year fixed-rate mortgage averaged 6.20 percent.

Averages for adjustable-rate mortgages (ARMs) also rose this week. Five-year ARMs averaged 6.35 percent this week, up from last week's average of 6.33 percent. At this time last year, the five-year ARM also averaged 6.18 percent.
One-year ARMs averaged 5.67 percent this week, an increase from last week's average of 5.65 percent. Last year, the one-year ARM averaged 5.65 percent.
Freddie Mac said that to obtain these rates lenders charged an average 0.4-point fee for 30-year fixed-rate mortgages. Lenders charged a 0.5-point fee for 15-year fixed-rate mortgages and for five-year ARMs. One-year ARMs included a 0.6-point fee.

"This week's data releases included the Producer Price Index and Consumer Price Index for July," said Nothaft. "Core inflation at the wholesale level increased 0.1 percent in July, or 2.3 percent year-over-year, below market expectations, while core inflation at the retail level grew by 0.2 percent, or 2.2 percent year-over-year, in line with what had been expected."

Freddie Mac is a mortgage finance company established by Congress in 1970. The company buys mortgages and mortgage-related securities and packages them to sell to investors or to hold in its own portfolio. They release their summary of average mortgage rates weekly.

Mortgage Market Woes: American Home Mortgage Implodes

This year has been a year of ups and downs for the housing market. In our continuing series, we chronicle news affecting the housing market and its major players.

An increasing roster of companies succumbing to serious financial problems has dominated much of the news this year. Recently added to this group, in a surprisingly spectacular fashion: American Home Mortgage.

On July 27th, the first signs of trouble emerged when the company postponed paying a scheduled dividend. Then, the company's lenders cut off access to credit. Last Friday, August 3, the company announced a decision to cut its workforce. From a robust 7,400 employees, the company slashed the payrolls to a shocking 750 employees.

Finally, on Monday, August 6, the company filed Chapter 11 bankruptcy. The company intends to use bankruptcy to maximize any remaining value of its assets, and wind down operations. They hope to sell their portfolio of loans and mortgage-related securities at auction. Analysts predict lenders and other investors might pick up the loans for pennies on the dollar. After the news, the New York Stock Exchange began delisting all American Home's common and preferred shares. The stock ended its trading at 44 cents, a huge drop from December values of $36.

What's most striking about American Home Mortgage's failure is their status as the first major lender serving high-credit and near-prime borrowers to see this severity of problems.

Most of the cause of mortgage industry problems thus far, and the focus of the media, has been the subprime mortgage market. These loans are made to people with less attractive credit scores, and are the biggest risk to default. That's exactly what's been happening, in big enough numbers to bring down many companies predicating their success on the strength of debt obtained from the subprime market. In fact, over 50 lenders focused in the subprime market have been forced into bankruptcy this year.

But the case of American Home Mortgage is different. Their focus was on lending to people considered better credit risks. Their products were "Alt-A" mortgages, loans that weren't quite prime but not yet subprime. The problem with these loans was sometimes unfavorably changing interest rates that become hard for borrowers to handle. These loans have defaulted in growing numbers, putting companies like American Home at risk. These loans represent 20 percent of the mortgage market (the subprime market represented 20 percent as well).

Mortgage-backed securities are directly affected by the subprime, and now the Alt-A market, fall. These packages of loans that are securitized and sold to investors are increasingly become devalued, making investors and sellers leery. In addition, we could be in the middle of a credit crunch that increases with each major company downfall. Lenders are afraid to make loans, don't have the funds for loans, or charge much higher interest rates on loans to break even.

For these reasons, and more, many industry experts and watchers see American Home's fate as a sign of what's to come in the wider mortgage industry. In the meantime, borrowers can expect to find slowly increasing mortgage rates and slightly less favorable lending environments.

U.S. Mortgage Rates Drop after Jobs, Unemployment Reports

Fixed-rate mortgage rates dropped in the week ending August 9, 2007, according to finance company Freddie Mac. Their weekly Primary Mortgage Market Survey® was released Thursday.

"Interest rates on prime conforming fixed-rate mortgages eased further in the past week, according to the Primary Mortgage Market Survey, even though other sources such as HSH Associates reported that jumbo fixed rates increased by a quarter percent or more last week," said Frank Nothaft, Freddie Mac vice president and chief economist. "Job creation fell short of market expectations, with 92,000 jobs added in July, the smallest gain since February, and June's number was revised down by 6,000. In addition, the unemployment rate ticked up for the first time in four months to 4.6 percent.

This week's survey indicates 30-year fixed mortgage rates averaged 6.59 percent, a plunge from last week's average of 6.68 percent. Last year at this time, the 30-year fixed-rate mortgage averaged 6.55 percent.

Fixed mortgage rates for 15-year terms averaged 6.25 percent, a drop from last week's average of 6.32. A year ago, the 15-year fixed-rate mortgage averaged 6.20 percent.

Averages for adjustable-rate mortgages (ARMs) bucked the trend and rose this week. Five-year ARMs averaged 6.33 percent this week, up from last week's average of 6.29 percent. At this time last year, the five-year ARM also averaged 6.21 percent.

One-year ARMs averaged 5.65 percent this week, an increase from last week's average of 5.59 percent. Last year, the one-year ARM averaged 5.69 percent.

Freddie Mac said that to obtain these rates lenders charged an average 0.4-point fee for fixed-rate mortgages. Lenders charged a 0.5-point fee for adjustable-rate mortgages.

"Freddie Mac reported that the amount of home equity cashed out through refinancing totaled $76.7 billion in the second quarter," said Nothaft. "Although slightly higher than the previous quarter's level, it still reflected a drop of $24.5 billion compared to the same quarter last year. Both the tightening of underwriting standards and slackening house price appreciation are possible contributing factors to the decline."

Freddie Mac is a mortgage finance company established by Congress in 1970. The company buys mortgages and mortgage-related securities and packages them to sell to investors or to hold in its own portfolio. They release their summary of average mortgage rates weekly.

Mortgage Market Woes: Credit Crunch

This year has been a year of ups and downs for the housing market. In our continuing series, we chronicle news affecting the housing market and its major players.

In all the insider talk about this year's mortgage woes, we've heard a lot of new terms. Subprime market. Government-sponsored enterprises. And then there are the copious economic reports with titles of varying complexity.

Add a new term to the list. Recently, there have been rumblings of a "credit crunch" as the effects of the subprime market implosion continue to be felt.

What's a credit crunch? Technically, it's an economic condition where investment capital is difficult to obtain. Banks and investors get leery of lending money to corporations, meaning higher prices for loans for borrowers. What this means in the greater context is an extension of or a harbinger of a recession.

Many industry analysts and corporation owners are saying a credit crunch is in progress or near. After years when companies and private equity firms had no limits and were able to obtain trillions of dollars of debt at low interest rates, the money may be drying up. This affects many parts of the economy. If cheap debt is restricted, it means an end to activity funded by cheap debt. This means businesses are scaling back products and expansion, meaning layoffs and lowered share prices.

It all started with the subprime market, where lenders offer mortgages to borrowers with credit that's less than ideal. For years the subprime market skipped along robustly. Mortgage lenders in the subprime market often sold the debt to a big Wall Street bank or other entity, where millions of these mortgage debts were pulled together into collaterized debt obligations (CDOs). These were sold to investors, such as hedge funds. A subprime loan became collateral for some other debt elsewhere in the world.

Since a subprime loan is lumped in with other types of debt, if an individual borrower defaults on the loan, the default shouldn't affect the overall CDO. However, the highly fluctuating and often unfair loans have meant an increased number of defaults in the last year. When a large number of borrowers default, trouble begins, and did begin this year. Over time and increased defaults, along with slipping house prices, investors have lost faith in CDOs. Demand has dropped drastically, and the value of the CDOs has collapsed.

How does this relate to a credit crunch? When the subprime market first started its sickening drop early this year, many lenders and regulatory agencies increased their scrutiny of the lending procedures in the market. As more and more companies have lost funds due to chain reaction of subprime defaults and CDOs, scrutiny increased. Now, many say, lending companies and banks are increasingly wary of extending loans to individuals and corporations. And when loans are given, they include higher interest rates than in the past few years.

All of this came to a head last week with the plunging stock market. Comments from a Bear Stearns executive indicated what many in the industry already believe - we're in the midst of a widening credit crunch. The Bear Sterns CFO described the situation in the credit market the worst he'd seen in 22 years.

It usually takes hindsight to definitively point out the beginnings of a recession or a credit crunch. Investors know that the next few weeks will feature volatility in the stock market due to credit worries and upcoming economic figures. Industry analysts keep their eyes on indicators like increasing company bankruptcies and stricter regulations. For the rest of us, we must sit and ride the tide of what could be a slowing economy.

Our New Mortgage Rates Search Feature for Handy Analysis

As mortgage rates continue to fluctuate with the economic ups and downturns in the USA, we thought this was a really good time to unveil the new mortgage rates search tool for our site visitors. It's handy, very easy to use, and quite informative - whether you live in Alaska or Florida or anyplace in between.

When you use this tool, you can select the target state for which you desire mortgage rates data (all fifty states are included), as well as the type of loan, amount of the loan, and whether you desire to purchase or refinance a home with the loan. The tool will then produce a list of companies offering the loan you seek - featuring the loan rate, APR, financial fees, and other pertinent information. It's a totally free service that even generates the links to the companies' websites.

We think our mortgage rates search tool is just one more reason why ERATE is the best site on the Internet for valuable mortgage information and resources. And we freely admit that we're a little biased in our opinions. Enjoy!

U.S. Mortgage Rates Drift Lower as Treasury Securities Snapped Up

Mortgage rates dropped in the week ending August 2, 2007, according to finance company Freddie Mac. Their weekly Primary Mortgage Market Survey® was released Thursday.

"Market investors seeking safety from the subprime fallout bought Treasury securities, pushing bond yields down and allowing mortgage rates to drift a bit lower," said Frank Nothaft, Freddie Mac vice president and chief economist.

This week's survey indicates 30-year fixed mortgage rates averaged 6.68 percent, a slight decrease from last week's average of 6.69 percent. Last year at this time, the 30-year fixed-rate mortgage averaged 6.63 percent.

Fixed mortgage rates for 15-year terms averaged 6.32 percent, a drop from last week's average of 6.37. A year ago, the 15-year fixed-rate mortgage averaged 6.27 percent.

Averages for adjustable-rate mortgages (ARMs) also posted downward changes this week. Five-year ARMs averaged 6.29 percent this week, down slightly from last week's average of 6.30 percent. At this time last year, the five-year ARM also averaged 6.27 percent.

One-year ARMs averaged 5.59 percent this week, a plunge from last week's average of 5.69 percent. Last year, the one-year ARM averaged 5.69 percent.
Freddie Mac said that to obtain these rates lenders charged an average 0.3-point fee for fixed-rate mortgages. Lenders charged a 0.5-point fee for adjustable-rate mortgages.

"Sales of new and existing homes fell in June, and prices continue to weaken, especially in the markets that had recorded the strongest gains over the past few years," said Nothaft. "There are early signs, however, that the market is stabilizing. As construction spending levels off, the drag on GDP growth will continue to diminish. Meanwhile, the 5 percent rise in pending home sales in June suggests that sales in July and August may reverse last month's decline."

Freddie Mac is a mortgage finance company established by Congress in 1970. The company buys mortgages and mortgage-related securities and packages them to sell to investors or to hold in its own portfolio. They release their summary of average mortgage rates weekly.