Mortgage rates ease: Third week in a row

Despite possible growth in defaults, all mortgage rates drop slightly with the help of unexpected economic growth.

Ryan Derousseau
September 4, 2008: 1:41 PM EDT

New York (CNNMoney.com) -- Mortgage rates declined, easing for the third straight week, according to a report from mortgage finance giant Freddie Mac.

Rates for 30-year fixed-rate mortgages (FRMs) averaged 6.35% in the week ending Sept. 4, according to Freddie Mac (FRE, Fortune 500). That's down from last week, when it stood at 6.4%, and below a year ago, when the rate stood at 6.46%.

Other rates also fell. Freddie's Primary Mortgage Market Survey showed that the 15-year FRM fell to a 5.9% average from 5.93% last week and from 6.15% last year.

"Mortgage rates eased a bit over the holiday-shortened week following release of economic data that suggest consumer spending may slow," Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement.

"The economy grew at an upwardly revised 3.3% pace in the second quarter, boosted by the smallest trade deficit in eight years, and residential fixed investment slowed growth by 0.6%, the least amount since the same period a year ago," Nothaft further noted.

Five-year adjustable-rate mortgages (ARMs) averaged 5.97% this week, dropping from last week when it reported at 6.03% and from last year at this time when it was at 6.32%.

The ARM average decline is on the heels of a Fitch Ratings report on Tuesday that warned of growing default rates within ARM mortgages.

With an ARM mortgage, the payment for the first five years does not have to even cover interest rate payments. The interest that accumulates is placed on the mortgage, and borrowers have to pay more of the growing amount every month after the first five years. The Fitch report stated that payments of this type of mortgage will jump, and delinquency rates could double on these loans within the next two years.

Still, one-year ARMs averaged 5.15%, a decline from 5.33% last week and 5.74% last year, according to Freddie's survey.