Mortgage Rates Inch Up Amid Debt-Default Fears

As House Republicans shifted their focus to a balanced budget amendment Friday in order to push through a debt-ceiling raise bill, two analytics companies posted upticks in mortgage rates ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô a sign that some say the markets feel increasingly unsure about whether the nation will be able to pay its debts come August 2. Economists hold firm on the issue of Treasuries and mortgage rates, forecasting a spike in both in a debt default scenario, pending action by Congress over the weekend.

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A ""Bankrate, Inc."":http://www.bankrate.com/ ""survey"":http://phx.corporate-ir.net/External.File?t=2&item=g7rqBLVLuv81UAmrh20Mp9/a13x9fnAsJjzOxtsTXbnhabnfP1FDrm26yBtKI40FlJv76w0kUPHisVPsAr19LQ reflected a 6-basis point surge to 4.74 percent, with mortgages totaling 0.35 discount and origination points. Mortgage giant ""Freddie Mac"":http://www.freddiemac.com/ also signaled a spike in mortgage rates by three percentage points, with 30-year fixed-rate loans shooting from 4.52 percent to 4.55 percent, alongside few changes from the previous week. Meanwhile, 30-year Treasury yields dipped by three basis points, falling from 4.29 to 4.26, the lowest since last Friday.

Writing for ""Bankrate.com"":http://www.bankrate.com/finance/mortgages/debt-debate-jolts-mortgage-rates.aspx, Polyana da Costa chalked up the discernable rises to ""uncertainty over what Congress will decide over the next few days├â┬ó├óÔÇÜ┬¼├é┬ª as investors question if it's still safe to invest in U.S. bonds.""

News reports Friday showed wrangling lawmakers nearer a debt-ceiling deal ahead of the deadline next week.

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Tacking a ""Balanced Budget Amendment"":http://rules.house.gov/Media/file/PDF_112_1/legislativetext/S627%20fa%20291141.pdf onto a debt limit plan, ""Speaker John Boehner"":http://www.speaker.gov/ (R-Ohio) tried to secure enough support from Tea Party Republicans to push the bill through the House, according to ""CBS News"":http://www.cbsnews.com/8301-503544_162-20085491-503544.html. The same continues to irk Senate Democrats, who vow to vote down the bill when it arrives.

Speaking to _MReport_ for a past story, Frank Nothaft, VP and chief economist at Freddie Mac, said that a default would ""cause long term interest rates to move sharply higher. It would lead to a spike upward in Treasury yields, and if Treasury yields move up sharply it will cause mortgage rates and Treasury yields to move up considerably.""

Should a default happen, he said, it would ""not be good"" for mortgage markets.

In separate interview, Paul Dales, a senior U.S. economist at ""Capital Economics"":http://www.capitaleconomics.com/, agreed by saying that ""[i]n the event of a debt default, Treasury yields would rise sharply and that would increase mortgage rates substantially. That wouldn't help the housing market because it is quite fragile at the moment.""

In a statement, Gibran Nicholas, chairman of the ""CMPS Institute"":http://www.cmpsinstitute.org/, said that homebuyers would face rising costs and the prospect of a higher debt burden.

""The US [sic] crisis is likely to cost homebuyers at least $122 per month,"" he said. ""Bonds issued by ""Fannie Mae"":http://www.fanniemae.com/kb/index?page=homeus and Freddie Mac will probably lose their AAA stat if the US credit rating is downgraded. This means that mortgage rates will likely go up.""

Nicholas added that the ""monthly payment on a $200,000 30 year mortgage would increase by a whopping $240 per month if mortgage rates go up slightly from 4.51% to 6.43% like they were just 3 short years ago. Even if interest rates only go up by 1% it would cost an extra $122 per month.""

Lawmakers have until Monday to raise the debt ceiling.