Mortgage Rates at Yet Another New Low

NEW YORK ( TheStreet) -- Mortgage rates for 30-year fixed home loans fell below 4% last week to their lowest level on record, Freddie Mac ( FMCC) said Thursday.

Rates fell to 3.94% in the past week, down from 4.01%, Freddie Mac said. That's the lowest rate since Freddie Mac began keeping records in 1971.

Rates on 15-year mortgages edged lower to 3.26% from 3.28%.

"There's nothing to gloat over," at BMO Capital Markets senior economist Sal Guatieri told Bloomberg. "The record low interest rates are a reflection of the times. The U.S. economy is fragile and the global economic headwinds remain brisk."

A strict credit market, stubbornly high unemployment, Europe's debt crisis and concerns that the U.S. may fall into a double-dip recession all continue to weigh on the economy.

Data released Wednesday showed that mortgage loan application volume fell 4.3% last week from a week earlier, despite the low rates, the Mortgage Bankers Association said. Low rates did not even spur a great number of current homeowners to refinance; the refinance index tumbled 5.2% from the previous week, and the refinance share of all mortgage activity fell to 79.1%, from 79.7% in the previous week. The MBAA's purchase index fell 1.7% last week and remained 12.1% lower from the year-earlier week.

"Interest rates continued to fall last week, driven by the latest Federal Reserve actions to invest in longer-term Treasury and mortgage securities, but potential borrowers largely remained on the sidelines, seemingly unimpressed by the lowest (by any measure) mortgage rates since the 1940s," said Mike Fratantoni, MBA's Vice President of Research and Economics. "Purchase borrowers continue to value the government lending programs that permit lower down payments. The government share of purchase applications decreased slightly to 41.6% last week, and while this is down from a recent peak of 50.4% in April 2010, it is still well above the pre-2009 survey average of 23.6%. Many refinance borrowers are opting to deleverage by moving to a 15-year term, with this product accounting for 27% of refinance volume last week."

Certain loan customers may get better rates from credit unions than from banks, though banks tend to have an advantage when it comes to mortgage rates, charging a 3.32% APR on 60-month adjustable rate mortgages to the credit unions' 3.77%, according to RateWatch data as reported by MainStreet last month. (A comparison of the two institution types on fixed mortgages conducted in December found a statistical dead heat, though some experts argued that credit unions have an advantage in that they tend to charge lower fees.)

But credit unions won on the other loan rates used in calculating the Credit Power Index, including personal unsecured loans (charging 10.49% to 12.54% at banks) and 36-month home equity loans (5.61% at credit unions, 6.75% at banks).

Stocks in the homebuilding sector were mostly higher Thursday, riding a general market rally. PulteGroup ( PHM) added 4.1%, D.R. Horton ( DHI) gained 1.7%, Toll Brothers ( TOL) rose 1.4% and Lennar ( LEN), largely considered a leader among the homebuilders, picked up 3.1%. Small-cap builder KB Home ( KBH) was higher by 3.5% while Hovnanian Enterprises ( HOV) bucked the trend, shedding 0.9%.

The SPDR S&P Homebuilders ( XHB) and iShares Dow Jones US Home Construction, ( ITB) exchange-traded funds that track the sector remain around 70% and 80%, respectively, off their early 2006 peaks.

-- Written by Miriam Marcus Reimer in New York.

>To contact the writer of this article, click here: Miriam Reimer.

>To follow the writer on Twitter, go to @miriamsmarket.

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