Published June 9, 2011
(Reuters) - Interest rates on U.S. 30-year mortgages tumbled on Wednesday near record lows on Wednesday, a day after the U.S. Federal Reserve pledged to keep short-term interest rates near zero at least through mid-2013.
One of the Fed's goals with its latest move is to lower U.S. mortgage rates to spur the housing market that has yet to recover from the subprime mortgage mess and overbuilding from the housing boom, analysts said.
Another goal for the Fed to help the economy is to add more money into homeowners' pockets by enabling them to refinance into lower-rate mortgages, they said.
The Mortgage Bankers Association said on Wednesday U.S. applications for refinancing jumped 30 percent last week, as the average 30-year mortgage rate it tracks slipped to 4.37 percent from 4.45 percent in the prior week.
Mortgage rates have been falling with U.S. Treasury yields, as investors have poured money into the bond market amid fears about a recession and the debt crisis in Europe.
The average rate on 15-year mortgages was 3.35 percent, while the average rate on "5/1" home loans, where the rate is fixed for five years and becomes annually adjustable after that, was 2.85 percent.
The U.S. government debt market has rallied since Tuesday after the Fed's rate pledge and losses on Wall Street. The Fed's move also fueled expectations of more steps from the U.S. central bank to lower long-term borrowing costs to help a weak housing market and an economy that has shown signs of slowing.
The yield on benchmark 10-year Treasury notes was down 18 basis points at 2.09 percent late Wednesday after touching a record low just below 2.04 percent on Tuesday.
U.S. mortgage rates are benchmarked against U.S. Treasury yields.
The drop in Treasury yields was partly offset by a rise in risk premiums in the mortgage-backed securities market, where banks and lenders seek to fund their mortgage business.