By Kevin Chiu
Mortgage rates rose for the second week in a row on fixed rate loans, and short term rates also increased, according to the Freddie Mac survey. The average rate on a 30-year fixed rate mortgage rose to 4.8%, six basis points higher over the previous week amid concerns that rates for many borrowers are expected to go higher.
The rate on a 15-year fixed rate loan also rose to 4.09% from 4.05% the prior week. The Treasury indexed adjustable rate mortgage also rose to 3.7% from 3.69% a week earlier, and the 1-year adjustable rate mortgage increased a single basis point to 3.26%.
“The index of leading indicators rose 1% in December, nearly twice that of the market consensus forecast and represented the sixth consecutive monthly increase,” said Freddie Mac chief economist Frank Nothaft. “They also reported a stronger gain in consumer confidence for January, rising to an eight-month high.”
However, higher unemployment claims reported by the Labor Department Thursday are likely to down play better consumer confidence news. Applications for unemployment surged by 51,000 to 450,000 for the week, the highest level since last October.
A new mortgage rating system used by the nation’s two mortgage giants, Fannie Mae and Freddie Mac is likely to lead some borrowers to pay higher mortgage rates. The new risk based model is expected to affect borrowers with FICO scores lower than 620, who have a history of some tarnished credit.
The change in underwriting criteria with the new system could jeopardize a recovery in the housing market, eliminating millions of homeowners and first time buyers from qualifying for affordable rates.
The new automated pricing model is expected to be implemented sometime in 2011 on mortgages sold to the nation’s largest lenders, and is likely to affect homeowners who are seeking refinances. About 85% of all mortgages currently being offered by lenders are sold to Fannie and Freddie.