Mortgage rates drifted lower this week, as reports of broad economic weakness helped keep a lid on expectations of any near-term jump in interest rates. Freddie Mac (FRE) said Thursday morning that its weekly survey of lenders found that the 30-year fixed-rate mortgage averaged 6.35 percent with an average 0.7 point for the week ending Sept. 4, down 5 basis points from one week ago. Rates remain lower than last year’s levels, as well: last year at this time, the 30-year FRM averaged 6.46 percent, according to Freddie Mac data. Adjustable-rate mortgages, which have fallen increasingly out-of-favor with borrowers as the nation’s economic malaise has spread, also fell; Freddie reported that five-year Treasury-indexed ARMs averaged 5.97 percent, down from last week’s average of 6.03 percent. One-year ARMs saw average rates fall 18 basis points to 5.15 percent, well off the 5.74 percent recorded last year at this time. “Mortgage rates eased a bit over the holiday-shortened week following release of economic data that suggest consumer spending may slow,” said Frank Nothaft, Freddie Mac vice president and chief economist. “The economy grew at an upwardly revised 3.3 percent pace in the second quarter, boosted by the smallest trade deficit in eight years, and residential fixed investment slowed growth by 0.6 percent, the least amount since the same period a year ago. “However, personal income fell 0.7 percent in July, the first decline since August 2005 and will likely slow consumer spending in the third quarter.” Further data suggests a weakening economy, as well, including the Federal Reserve’s most recent Beige Book; on Wedensday, the latest reading from key Fed regions suggested that the economy’s lone bright spot — exports — may finally be weakening. Likewise, inflation concerns ebbed slightly on Thursday as revised figures from the Commerce Dept. showed that U.S. productivity soared in Q2. See full report at the WSJ. Taken together, HW’s sources suggest the incoming economic data suggest that the Fed will sit tight in a holding pattern on its key federal funds rate; this, along with weak economic fundamentals, suggests that mortgage rates may be largely unaffected by Fed moves the rest of this year. Of course, that says nothing about investors in the secondary market, who have been facing a fear of an entirely different sort surrounding the futures of Freddie Mac and twin GSE Fannie Mae (FNM). Should conditions worsen there — or even irrespective of further trouble among the GSEs, in the case of delivery fees — mortgage rates could be pressured as investors bid up yields on agency MBS. For more information, visit http://www.freddiemac.com. Disclosure: The author was long FRE when this story was published; indirect holdings may exist via mutual fund investments, as well. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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