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Originally published Friday, October 29, 2010 at 10:00 PM

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Mortgage trends to watch at year's end

Mortgage rates will remain low, getting a home loan will continue to take a long time and refinancers will be tempted by mortgages with zero-closing costs.

Those are some of the trends industry insiders may see as the year closes out.

Mortgage rates have dipped to modern record lows this fall. In the spring, economists warned that rates would be rising by now.

At the end of March, the Federal Reserve wrapped up an initiative intended to drive down mortgage rates by buying $1.25 trillion worth of mortgage-backed securities. The consensus view throughout the mortgage industry was that rates would rise steadily through the end of this year.

Instead, mortgage rates fell steadily through the summer and into the fall. Now, economists speculate the Fed might start buying Treasury securities to drive long-term interest rates even lower. The speculation seems to have put a cap on mortgage rates.

"I see rates low and I see them continuing low for a pretty long period,"says Paul Anastos, president of Mortgage Master, a lender based in Walpole, Mass.

A.W. Pickel, CEO of LeaderOne Financial, a mortgage bank based in Overland Park, Kan., says he doesn't see how rates could go much lower.

"The mortgage interest rate should be inflation plus cost of funds. That should put us in the 4s, which is where it is," he says.

With rates at record lows, borrower frustration is at record highs. It seemingly takes forever to get a home loan, especially a refinance.

"Underwriting turn times are absolutely awful across the board right now," says Dan Green, loan officer for Waterstone Mortgage in Cincinnati. "Many lenders are recommending 60-day (rate) locks right now, just because of volume."

The process is particularly brutal for homeowners who have home-equity loans or home-equity lines of credit. Before they can refinance, these borrowers have to persuade their equity lenders to resubordinate, or agree to keep the loan in second-banana status.

Rates are low, but relatively few people are refinancing their jumbo loans because underwriting is strict, Anastos says.

Jumbos are not guaranteed by Fannie Mae or Freddie Mac. Consequently, jumbo rates are higher because they pose more risk to the lender.

The average 30-year fixed-rate mortgage rose 9 basis points, to 4.51 percent. A basis point is one-hundredth of a percentage point.

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