Rates on 30-year fixed-rate mortgages dropped below 5 percent this week — something never seen before in the 37 years Freddie Mac’s been conducting its Primary Mortgage Market Survey.

The 30-year fixed-rate mortgage (FRM) averaged 4.96 percent with an average 0.7 point for the week ending Jan. 15, down from 5.01 percent last week and 5.69 percent a year ago.

The survey is based on first-lien prime conventional conforming mortgages with down payments of 20 percent. Rates are higher for borrowers seeking "jumbo" loans or for those providing smaller down payments requiring government or private mortgage insurance.

While low rates on conventional, conforming loans is good news for qualified borrowers who can meet Freddie Mac and Fannie Mae’s underwriting standards, the drop in mortgage rates also reflects grim economic news and large-scale government intervention in mortgage markets.

Unemployment rose to 7.2 percent in December, the highest since January 1993, and the economy lost 2.6 million jobs in 2008, the largest annual drop since 1945, said Frank Nothaft, Freddie Mac vice president and chief economist. Those developments have brought down yields on Treasury securities, and mortgage rates have followed, Nothaft said.

The U.S. Treasury Department and the Federal Reserve have added more than $100 billion in liquidity to the mortgage market since September, which put downward pressure on interest rates for fixed-rate mortgages, Nothaft said. The Federal Reserve may provide an additional $570 billion more this year to further shore up mortgage lending and keep rates low, he said.

Rates on 15-year fixed-rate mortgages were up slightly this week, averaging 4.65 percent with an average 0.7 point, up from 4.62 percent last week but down from 5.21 percent a year ago.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 5.25 percent this week, with an average 0.6 point, down from 5.49 percent last week and 5.4 percent a year ago. when it averaged 5.49 percent. A year ago, the 5-year ARM averaged 5.4 percent. The 5-year ARM has not been lower since the week ending Sept. 8, 2005, when it averaged 5.24 percent.

One-year Treasury-indexed ARMs averaged 4.89 percent this week with an average 0.5 point, down from 4.95 percent last week and 5.26 percent a year ago.

The Mortgage Bankers Association estimates that applications for refinance loans jumped 25.6 percent last week as borrowers sought to take advantage of the low rates on fixed-rate mortgages (see story).


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