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Freddie Mac: Mortgage rates down again despite new cut in Fed stimulus

Freddie Mac: Mortgage rates down again despite new cut in Fed stimulus
Federal Reserve chief Janet Yellen appears before the Senate Budget Committee to discuss the nation's economic and fiscal outlook in May. (J. Scott Applewhite / Associated Press)

The great rate freakout of June 2013 looks awfully panicky in the rearview mirror, with fixed mortgages now far cheaper than they were back then.

It's been a full year since the Federal Reserve unnerved home lenders and buyers by announcing it would choke back a stimulus program that had sent long-term borrowing costs to record lows.

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The average 30-year mortgage rate leaped from 3.93% to 4.46% that week, according to Freddie Mac's survey -- the biggest weekly jump since 1987.

But instead of rising as feared, mortgage rates have drifted lower over the year. Freddie Mac said Thursday that lenders were offering 30-year loans to solid borrowers at an average of 4.14%, down from 4.17% last week.

Translated into the actual rates offered to borrowers, that would mean a loan at 4.125% compared with 4.5% a year ago, lowering the annual payments on a 30-year mortgage for $400,000 by more than $1,000.

The lowest-risk borrowers were getting 30-year loans this week at 3.875% by paying 1% of the loan amount upfront, according to Jeff Lazerson at the Mortgage Grader loan brokerage in Laguna Niguel.

Fed chief Janet Yellen has remained true to the stimulus-cutting pledge, reducing monthly purchases of mortgage-backed securities from $40 billion to $15 billion, with the latest $5-billion reduction announced last week.

As recently as March, the Fed was buying more than 80% of all mortgage-backed securities being issued, according to Mark Zandi, chief economist of Moody's Analytics. That has now declined to about 50% of mortgage bonds, he said.

Yet the slow economic recovery has brought little news to rekindle fears of inflation, which would tend to send rates higher.

Freddie Mac's chief economist, Frank Nothaft, noted that the government said this week that the decline of the winter-gripped economy in the first quarter was 2.9% -- greater than initially calculated.

And while home prices are up in double digits year over year, the latest monthly change in the S&P/Case-Shiller 20-city price index was just 0.2%, Nothaft said.

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