If mortgage rates keep up their current pattern of decline, the forced rate reduction allegedly under discussion at the Department of the Treasury may not be necessary.

After showing a net loss of 23 basis points during November, the 30-year fixed-rate mortgage (FRM) plunged during the week ended today (December 4) according to data released from Freddie Mac's Primary Mortgage Market Survey.  The 30-year rate for the holiday-shortened period averaged 5.53 percent with 0.7 point compared to an average of 5.97 percent with 0.7 point during the week ended November 26.  This is the lowest average rate reported by Freddie Mac since the week ended January 24 when the 30-year averaged 5.48 percent.

The 15-year FRM also took a big drop to 5.33 percent with 0.7 point.  The previous week the average had been 5.74 percent also with 0.7 point.  This is the lowest average rate for the 15-year mortgage since the week ended March 20 when it was 5.27 percent.

Short term rates were down but showed less volatility. The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) carried an average rate of 5.77 percent for the week with 0.6 point, down from last week when the average was 5.86 percent and 0.6 point. 

One-year Treasury-indexed ARMs averaged 5.02 percent this week with an average 0.5 point, down from last week when they averaged 5.18 percent with 0.5 point.

With some variable rate mortgages running at a higher interest rate than FRMs it is easy to see why ARMs have become virtually irrelevant.  The Mortgage Bankers Association reported yesterday that ARMs accounted for only 1.4 percent of mortgage application activity during the preceding week.

As reported earlier today in the article on the possible 4.5 percent rate for home purchases under discussion at Treasury we reported that mortgage applications had skyrocketed 112.1 percent during the holiday shortened week ended November 28.  On an unadjusted basis applications increased 51.4 percent.  The Treasury program would not, however, benefit the majority of the applicants scrambling to take advantage of this week's rates as 69.1 percent were planning to refinance rather than purchase.  If adopted, the 4.5 percent rate will only be available to home buyers.

According to Frank Nothaft, Freddie Mac vice president and chief economist, "After Federal Reserve actions to increase liquidity in the mortgage market, interest rates for fixed-rate mortgages (FRMs) took a dive. This week's decline was the largest since the week of October 23^rd, 2008, and 30-year FRM rates are now almost a full percentage point lower since the last week in October.

"The recent plunge in rates contributed to the nearly 150 percent jump in conventional mortgage applications over the Thanksgiving week, led by almost a 300 percent surge in refinances, according to the Mortgage Bankers Association.  Roughly three out of four mortgage applications were for refinance transactions, up from around half during the prior week."

Earlier this week Fannie Mae released weekly yields for November 28 and these also showed a sharp drop.  30-year FRM had an average interest rate of 5.09 compared to 5.82 a week earlier.  The 15-year FRM was at 4.880, a drop of 62 basis points during the week.  An average one-year ARM went up from 4.620 to 4.840.  FHA/VA mortgages (30-year FRM) had an average rate of 6.38 compared to 6.97 the week before.