Wall Street Journal graph depicting the number of overdue mortgages and foreclosures versus the rising 30-year fixed mortgage rates
The Wall Street Journal announced today that mortgage rates have surged to their highest level in three years. The average rate on 30 year fixed rate forward mortgage was 5.44% on Thursday. But what is more remarkable is that the level jumped 7.6% from Tuesday, when the rate was just 5.03%. While forward mortgage rates are not directly related to the reverse mortgage rates, the same trend can be observed in the reverse mortgage rates. Between May 19th and May 27th, the rates for the 10-year CMT (which affects the HECM CMT programs) increased by 4.6%, while the rates for the 10-year LIBOR swap (which affects the HECM LIBOR programs) increased by 2.4%. If the forward mortgage data is any indication, next week’s reverse mortgage rates will be even higher.
The increasing mortgage rates in both markets are a cause for concern amongst those in the industry. For one, increasing mortgage rates will make homeowners less likely to buy a home. The Wall Street Journal reports that Credit Suisse estimates that each increase of .10 percentage point in mortgage rates is equivalent to a 1% rise in home prices. By their calculations, home prices would then have risen over 3% in two days (while home values have remained constant).
Increasing mortgage and reverse mortgage rates will also make it harder for borrowers to refinance and/or get out of foreclosure. They will lower the amount of money that can be saved by refinancing. These negative affects will not help a stuggling housing industry where, as reported yesterday, the number of homeowners behind on their mortgage or in foreclosure is already at record high levels.