Mortgage rates probed new lows this week as growing worries about the strength of the economic recovery raises the prospects that the Federal Reserve will approve another round of quantitative easing.

Rates on 30-year fixed-rate mortgages averaged 3.49 percent with an average 0.7 point for the week ending July 26, down from 3.53 percent last week and 4.55 percent a year ago, Freddie Mac said in releasing the results of its weekly Primary Mortgage Market Survey. That’s a new low in Freddie Mac records dating to 1971.

For 15-year fixed-rate mortgages, rates averaged 2.8 percent with an average 0.7 point, down from 2.83 percent last week and 3.66 percent a year ago. That’s a new low in records dating to 1991.

Rates on five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) loans averaged 2.74 percent with an average 0.6 point, up from 2.69 percent last week but down from 3.25 percent a year ago. Last week’s rate for five-year ARMs was an all-time low in records dating to 2005.

For one-year Treasury-indexed ARMs, rates averaged 2.71 percent with an average 0.5 point, up from 2.69 percent last week but down from 2.95 percent a year ago. Rates on one-year ARMs hit an all-time low in records dating to 1984 of 2.68 percent during the week ending July 5.

A separate survey by the Mortgage Bankers Association showed applications for refinancings soared last week to their highest level in more than three years. Requests to refinance were up 2 percent to the highest level since April 2009, and accounted for 81 percent of all mortgage loan applications.

But applications for purchase loans were down a seasonally adjusted 3 percent compared to the week before, to the lowest level since June 22, 2012.

Tight underwriting standards, homebuyer uncertainty, and inventory shortages in some markets have all hampered home sales. The National Association of Realtors reported today that pending home sales fell 1.4 percent from May to June. 

Mortgage rates are determined largely by investor demand for mortgage-backed securities that are guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. In times of economic uncertainty, investor demand for Treasury bonds, mortgage-backed securities and similar investments pushes long-term interest rates down.

During the economic downturn, the Federal Reserve has helped push rates down by buying up Treasury bonds and mortgage-backed securities, in the hopes of encouraging borrowing.

Because rates are already so low, some analysts are skeptical that a third round of quantitative easing — often referred to as "QE3" — will be effective.

But several Fed officials are on the record as supporting additional purchases of mortgage-backed securities as a means of providing support to housing markets, the New York Times reports.

Although members of the Federal Open Market Committee are scheduled to meet Tuesday and Wednesday, many Fed observers expect its members to hold off on a decision on whether or not to embark on QE3 until its next meeting, in September.

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