US mortgage rates tumble to 5.1 pct

Bloomberg

The average rate on a 30-year fixed mortgage tumbled for a ninth straight week, to 5.10 percent from 5.14 percent a week earlier, Freddie Mac said in a report last week. That’s the lowest on record, according to data that goes back to 1971, the McLean, Virginia-based mortgage buyer said.

The Federal Reserve is buying $500 billion of mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae in an attempt to lower mortgage rates and curb the housing slump at the center of a yearlong U.S. economic recession. Low borrowing costs may not be enough to offset 2008’s loss of 1.9 million jobs, said Michael Darda, chief economist at MKM Partners.

"You can’t get a mortgage if you’ve lost your job," Darda said. "When you add up the high inventory, tight lending standards, and a weak labor market, there are more negatives than positives for housing, even with the low rates."

The Fed also said Dec. 30 it will use BlackRock, Goldman Sachs Asset Management, Pacific Investment Management and Wellington Management to manage the mortgage bond purchases it announced on Nov. 25.

The program is intended to lower rates by reducing the supply of outstanding agency mortgage bonds, boosting their prices and thus lowering their yields. Lower yields in turn reduce the interest rates banks need to charge on new mortgages to ensure profitable sales of the securities. The purchases should be completed by June, the Fed said in a statement.

The U.S. economy shrank at a 0.5 percent annual pace in the third quarter of 2008, the Commerce Department said Dec. 23. Economists surveyed by Bloomberg estimated the economy probably will contract at 4.3 percent in the last quarter, the biggest decline since 1982, and would continue contracting for the next two quarters. The U.S. jobless rate could reach 8.2 percent at the end of next year, a 26-year high, according to the survey.

The 15-year fixed rate fell to 4.83 percent from 4.91 percent and the one-year adjustable rate dropped to 4.85 percent from 4.95 percent.