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latimes.com

Freddie Mac: Home loan rates level off; 30-year fixed at 4.51%

By E. Scott Reckard

8:04 AM PST, January 9, 2014

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Mortgage rates leveled off in familiar territory this week, home finance giant Freddie Mac said, with lenders offering 30-year fixed loans to solid buyers at an average of 4.51%, down from 4.53% last week.

Fifteen-year fixed mortgages, popular with homeowners trying to pay off their housing debts, averaged 3.56%, up from 3.55% last week, Freddie Mac said in its weekly report, issued Thursday. The average start rate for adjustable mortgages that are fixed for the first five years was 3.15%, up from 3.05%.

The mortgage market appears to have digested the Federal Reserve’s recent decision to cut back on a stimulus program that had pushed rates to unprecedented lows, and there was little economic news this week to influence rates, noted Freddie Mac chief economist Frank Nothaft.

Lenders also appeared ready for new regulations that take effect Friday, requiring loan issuers to determine if borrowers can actually repay their home loans, and to discourage features that contributed to the mortgage meltdown.

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Those features include mortgages made with little or no documentation; loans that carry unusually high fees and prepayment penalties; loans that allow borrowers to qualify based on artificially low “teaser” rates; and mortgages that give the borrower the option of paying so little that the loan balance rises instead of falls.

Given the tight underwriting standards already in place in the market, the new Consumer Financial Protection Bureau rules may not do much to further restrict credit availability -- but they don't do much to enhance it either, said Keith Gumbinger, vice president of the rate-tracking firm HSH.com.

"Lenders have been deeply scrutinizing borrower applications for several years, requiring plenty of documentation and doing their best to make certain that borrowers can afford the loan," Gumbinger said in an HSH report on rates."Until Friday, that's been a kind of market-enforced discipline.”

Aggressive bond-buying by the Federal Reserve pushed the average rate on a 30-year mortgage below 4% for nearly all of 2012, bottoming out at less than 3.4% at the end of that year.

Then last summer, as it became clear Fed governors would soon begin to reduce the bond purchases, the rate shot back up to the mid-4% range -- enough to end a refinance boom but still extremely low by historical standards.

Freddie Mac, the housing finance giant that taxpayers bailed out during the financial crisis, asks lenders early each week about the terms they are offering to solid borrowers. The borrowers would pay less than 1% of the loan amount  to the lenders in upfront fees and discount points.

The government chartered Freddie Mac more than 40 years ago to bring liquidity to housing finance by buying mortgages and bundling them up to back bonds -- securities that are sold to investors with Freddie guaranteeing payment.

The company nearly melted down during the financial crisis, crippled by losses on high-risk loans and its investments in supposedly high-quality bonds backed by subprime mortgages.

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