Mortgage Rates Fall on Debt-Deal News

Market worries cooled Monday as news reports confirmed a tentative debt-ceiling deal by public officials Sunday, a last-minute agreement that would avert the next financial crisis predicted by economists. In response to the possible deal, mortgage rates stepped down from nominal highs from last week.

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According to ""Headline News"":http://www.headlinesnews.net/15788/bank-of-america-and-wells-fargo-mortgage-rates-today, ""Bank of America"":https://www.bankofamerica.com/ reported that 30-year fixed-rate mortgages fell to 4.37 percent, down several basis-points from last week. Adding to the positive news, fellow mortgage giant ""Wells Fargo"":https://www.wellsfargo.com/home_1.htm yielded 30-year loans at 4.50 percent, as ""MonitorBankRates.com"":http://www.monitorbankrates.com/mortgages/mortgage-rates-decrease-on-possible-debt-deal showed a dip in the same category to 4.48 percent from 4.50 percent.

For 15-year fixed-rate mortgages, Bank of America showed a decline to 4.24 percent, while Wells Fargo reported 3.63 percent. MonitorBankRates.com yielded an average dip in 15-year loans at 4.66 percent, beneath Sunday's 3.72 percent, according to the Web site.

Last week mortgage rates inched up as fears about a U.S. debt default unsettled the markets. A ""Bankrate, Inc."":http://www.bankrate.com/ survey showed a 6-basis point jump to 4.74 percent for 30-year fixed-rate mortgages, with loans totaling 0.35 discount and origination points. Meanwhile, ""Freddie Mac"":http://www.freddiemac.com/ posted 30-year loans at three additional percentage points, up from 4.52 percent to 4.55 percent.

Until late last week, Freddie Mac had suggested few changes to mortgage rates.

""Macroeconomic data released this week were a mixed bag,"" said Frank Nothaft, chief economist at Freddie Mac. ""On the positive side, the index of leading indicators in June rose for the second consecutive month, beating the market consensus forecast. Partly offsetting this, orders for durable goods were weaker than market expectations for the same month.""

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On Sunday multiple news services confirmed a deal in the high-stakes standoff between Democratic and Republican lawmakers over the need for a debt-ceiling raise. ""CNN"":http://money.cnn.com/2011/08/01/news/economy/debt_ceiling_breakdown_of_deal/index.htm?hpt=hp_t1 reported that President Barack Obama, House Speaker John Boehner (R-Ohio), and Senate leaders agreed to a deal that would raise the debt ceiling installments by about over $2 trillion, following deep spending cuts sized at about $1.2 trillion or $1.5 trillion.

Market watchers from across the political spectrum and organizations had predicted sharp upticks in mortgage rates that would break up still-brittle housing markets.

Speaking to _MReport_ for a past story, Nothaft 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.""

Heather Boushey, a senior economist with the ""Center for American Progress Action Fund"":http://www.americanprogressaction.org/, said that a debt default would ""definitely not be good"" for mortgage markets or the housing sector in general.

In previous testimony before Congress, Boushey had sketched a grim scenario for the housing sector and homebuyers in the instance of a debt default, which she said would ""require higher interest rates on U.S. Treasuries├â┬ó├óÔÇÜ┬¼├é┬ª eliminat[ing] nearly 650,000 jobs"" in the economy.

""If the Treasury rates immediately go up by 0.5 percentage points, the household debt service burden for the average U.S. family would also increase by at least 0.5 percentage points,"" she added. Partly as a result, ""[a] debt default would likely cause an increase in the 10-year Treasury rate by half a percentage point, which could translate into a jump in the mortgage rate equal to 0.66 percentage points, the highest levels since 2008. This will further depress the housing market.

""The U.S. housing market would most likely experience a severe double-dip contraction marked by much-lower home sales and depressed house prices,"" she added.

According to CNN, the Senate will vote on ""proposed legislation"":http://money.cnn.com/news/storysupplement/debt_ceiling_bill/?iid=EL, followed by action from the House, before the August 2 debt-ceiling deadline.