Mortgage Rates Forecast

Executive SummaryThis report forecasts future 30 year fixed conventional mortgages from July 2010 to November 2010. Data are from Board of Governors of the Federal Reserve System. I found the following important results. Forecast

July-20104.75

August-20104.76

September-20104.77

October-20104.78

November-20104.78

Forecast mortgage rate is measured in percentages and is calculated using the regression model reported in Table 7 and future nominal 10 year maturity U.S. Treasury securities yield calculated from Holts exponential smoothing forecasts based upon the model reported in Table 12

Mortgage rates exhibit a negative trend. Mortgage rates decrease overtime.

Mortgage rates do not exhibit seasonality.

Mortgage rates are pro-cyclical, meaning during an economic recession mortgage rates decreases.

Nominal 10 year maturity U.S. Treasury securities yields are correlated with mortgage rates. If Treasury securities yield increases by one percentage point, all else constant, mortgage rates will increase by .78 of a percent.

Variable DefinitionThis project forecasts the monthly interest rate for 30-year fixed conventional mortgages for August through November of 2010. A fixed mortgage is a mortgage in which the interest rate does not change during the entire term of the loan.[endnoteRef:1] In the case of a 30-year fixed conventional mortgage, the interest rate is fixed for the entire term of 30 years. This is in contrast to adjustable mortgages where the interest rate can change based on inflation or other variables. Another component of a conventional mortgage is that it is not insured or guaranteed by the government.[endnoteRef:2] [1: "Conventional Mortgage." InvestorWords.com. http://www.investorwords.com/1097/conventional_mortgage.html/ (accessed May 27, 2010).] [2: Ibid.]

Market DescriptionThe mortgage banking industry initially appears competitive, with over 7,000 companies earning about $50 to $75 billion in revenue a year.[endnoteRef:3] However, the market is an oligopoly with the 50 largest corporations earning 70% of the revenue. Big players include Wells Fargo, JP Morgan Chase, Citigroup and Bank of America.[endnoteRef:4] Wells Fargo is the United States largest mortgage lender, servicing one in every seven mortgage loans in the U.S. With the acquisition of Wachovia it will have a customer base of 9 million and a portfolio of $1.7 trillion,[endnoteRef:5] ($237.15 billion in new originations alone) leading it to 16% of the market.[endnoteRef:6] In the United States, JPMorgan Chase owns the largest hedge fund, with $53.5 billion in assets.[endnoteRef:7] In 2007 Bank of America had 24.5% of the market share for top mortgage lends,[endnoteRef:8] however that has since decreased since the 2008 financial crisis. The fourth largest mortgage lender in the United States is Citigroup, with $198 billion of residential loans in 2007,[endnoteRef:9] however this corporation was hit especially hard during the financial crisis. [3: Hoovers. "Industry Overview: Mortgage Banking." Hoovers: a D&B Company. 2010. http://www.hoovers.com/mortgage-banking/--ID__176--/free-ind-fr-profile-basic.xhtml (accessed July 9, 2010).] [4: Ibid.] [5: Wells Fargo. "Mark C. Oman: ." Wells Fargo. May 2010. https://www.wellsfargo.com/about/corporate/executive_officers/oman (accessed July 9, 2010).] [6: National League of Cities. "National League of Cities: Corporate Partner: Wells Fargo." National League of Citites. http://www.nlc.org/inside_nlc/membership/corporate_partners_program/11734.aspx (accessed July 9, 2010).] [7: Market Folly. "World's Largest Hedge Funds." Market Folly. March 9, 2010. http://www.marketfolly.com/2010/03/worlds-largest-hedge-funds.html (accessed July 9, 2010).] [8: Marchinone, Karen. "Bank of America Catapults to #1 Position in Online Mortgage Lending with the Acquisition of Countrywide." Compete. 25 January, 2008. http://blog.compete.com/2008/01/25/bank-of-america-countrywide-merger-online-mortgage/ (accessed July 9, 2010).] [9: Rueters. "Citgroup to Cut Mortgage Exposure by $45 Billion." CNBC. March 6, 2008. http://www.cnbc.com/id/23506350/Citigroup_to_Cut_Mortgage_Exposure_by_45_Billion (accessed July 7, 2010).]

All four of these banks received government bailout money [Troubled Assets Relief Program (TARP) funds] in response the 2008 financial credit crisis. Wells Fargo, JPMorgan Chase, and Bank of America have since repaid their TARP funds.[endnoteRef:10],[endnoteRef:11],[endnoteRef:12] Citibank still owes a great portion of their $45 billion in TARP funds which means 35% of their stocks are owned by the government and consequently they have been taken off the DOW. [endnoteRef:13] [10: Wikinvest. "Bank of America (BAC)." Wikinvest. 2010. http://www.wikinvest.com/stock/Bank_of_America_(BAC) (accessed July 9, 2010).] [11: . "J P Morgan Chase (JPM)." Wikinvest. 2010. http://www.wikinvest.com/stock/J_P_Morgan_Chase_(JPM) (accessed July 9, 2010).] [12: . "Wells Fargo (WFC)." Wikinvest. 2010. http://www.wikinvest.com/wiki/Wells_Fargo_(WFC) (accessed July 9, 2010).] [13: . "Citigroup (C)." Wikinvest. 2010. http://www.wikinvest.com/wiki/CITIBANK (accessed July 9, 2010).]

Since many customers do not have enough money to buy a house from their own savings they often borrow from a lender. The lender (a.k.a. mortgage originator) is usually a bank or some other financial institution. The bank charges an interest rate that is added to a fixed amount of monthly payments to pay back the loan for the mortgage. The interest rate is the cost of borrowing and acts as revenue to the bank. The interest rate is based on the customers likelihood of paying back the loan on time. The banks use the interest revenue from the mortgage to finance other loans. Sometimes the original lender sells loans to a third party causing a secondary market. The original lender usually sells its loan in pieces of riskiness. It bundles pieces of all the loans with a certain risk into packages called mortgage-backed-securities then sell the mortgage backed security to a third party. The third party might repackage it with more loans and sell the set of loans to yet another bank or financial institution, and so on and so forth. The third party is often either another private bank or financial institution, or the Federal National Mortgage Association (a.k.a. Fannie Mae).[endnoteRef:14] Since the lender who owns the loan changes an independent loan servicer may be involved to directly work with the borrower in collecting the interest payments.[endnoteRef:15] Even though the current lender may change, the amount of the monthly payments paid by the borrower does not change for fixed conventional mortgages. [14: Fannie Mae. "About Fannie Mae." FannieMae. 2010. http://www.fanniemae.com/kb/index?page=home&c=aboutus (accessed June 21, 2010).] [15: Federal Trade Commission: Bureau of Consumer Protection: Division of Consumer and Business Education. "Facts for Consumers: Mortgage Servicing: Making Sure Your Payments Count." Federal Trade Commission: Protecting America's Consumers. June 7, 2010. http://www.ftc.gov/bcp/edu/pubs/consumer/homes/rea10.shtm (accessed June 21, 2010).]

Data SummaryFreddie Mac has surveyed about 125 lenders in the United States each week since 1971 in the Primary Mortgage Market Survey to determine the average 30 year contract fixed mortgage rate.[endnoteRef:16] The nominal 10 year treasury security yield variable is adjusted to constant maturities. [endnoteRef:17] [16: Freddie Mac. "About the Primary Mortgage Market Survey (PMMS): About Freddie Mac." Freddie Mac. 2010. http://www.freddiemac.com/pmms/abtpmms.htm (accessed July 19, 2010).] [17: Ibid.]

All the variable data are organized as a time series. They are all also measured in percentage points, making them an example of ratio measurement. As one can see in the time series Figure 1, mortgage rates have a downward trend, and decrease during times of recessions [2007-2009].[endnoteRef:18],[endnoteRef:19] Also one can see from the monthly averages in Table 2 that the monthly percentage points differ by only fractions of a percentage point showing there is no seasonality.[endnoteRef:20] Looking at the histogram in Figure 3 , given the time period of the data [January 1990 June 2010], the frequency of interest rate percentage points is roughly bell-shape, with the most popular interest rate between 6 and 6.5 percentage points. Figure 4 shows that nominal 10 year U.S Treasury securities yield also has downward trend and decreases during recessions [2007-2009].[endnoteRef:21],[endnoteRef:22] From the monthly averages in Table 4 one can see there does not appear to be monthly seasonality.[endnoteRef:23] Figure 6 is a bell shaped histogram showing the highest frequency of U.S. Treasury securities yields in the 4 to 5 percentage points range. [18: Gross, Daniel. "The Recession Is...Over?" Newsweek. July 14, 2009. http://www.newsweek.com/2009/07/13/the-recession-is-over.html (accessed July 19, 2010).] [19: Referring to the correlogram in Figure 2 there appears to be trend and 1st order autocorrelation.] [20: Table 3 shows Welch test output for monthly seasonality with H0:1 = 2 = 12. The alternative hypothesis is that at least one groups mean is different. With = 0.05 I do not reject the null hypothesis.] [21: Gross, Daniel. "The Recession Is...Over?" Newsweek. July 14, 2009. http://www.newsweek.com/2009/07/13/the-recession-is-over.html (accessed July 19, 2010).] [22: Referring to the correlogram in Figure 5 there appears to be trend and 1st order autocorrelation.] [23: Table 5 shows Welch test output for monthly seasonality with H0:1 = 2 = 12. The alternative hypothesis is that at least one groups mean is different. With = 0.05 I do not reject the null hypothesis.]

As seen in the Table 6: Descriptive Statistics, from the given time period, the average mortgage interest rate has been 5.85 percent. The highest value of 6.76 percentage points occurred in July 2006, while the lowest value of 4.74 percentage points occurred recently in June 2010. Given the range of 4.74 to 6.76 percent, 5.9 percentage points is the median. The nominal 10 year treasury yield averages at 3.44 percentage points. High of 5.11 percentage points in May of 2006, low of 2.42 percentage points in December of 2008, leading to a median of 4.15 percentage points.MethodologyTo forecast future 30 year maturity fixed mortgage rates we estimate a regression with mortgage rates [mort] as the dependent variable and nominal 10year maturity U.S. Treasury stock yield [N10T] as the independent variable. This is the regression function used: Mortt= 0 + 1N10Tt + tSince 10 year U.S. Treasury securities are used to set long term mortgage rates, we expect the coefficient for the nominal 10yr maturity Treasury securities yield to be positive.[endnoteRef:24],[endnoteRef:25] Figure 7 shows a scatter graph displaying the relationship between mortgage rates and treasury yields using the sample data. [24: Nielsen, Barry. "How Interest Rates Affect The Housing Market." Investopedia. 2010. http://www.investopedia.com/articles/pf/07/mortgage_rate.asp (accessed July 21, 2010).] [25: Mortgage-X. "Treasury Market and Mortgage Rates." Mortgage-X: Mortgage Information Service. 2010. http://mortgage-x.com/general/treasury.asp (accessed July 23, 2010).]

Estimation ResultsTable 7 summarizes the results of the regression.[endnoteRef:26] With a one month lag,[endnoteRef:27] all else constant, a Wald test indicates there is no trend in the data.[endnoteRef:28] Treasury yield [N10T] is statistically significant and has a positive coefficient of .78. This means as nominal 10 year maturity U.S. Treasury yield increases by one percentage point, [all else constant] 30 year fixed conventional mortgage rates will increase by .78 of a percentage point.[endnoteRef:29] The adjusted r square is .99, meaning this regression model accounts for 99% of variability in mortgage rates. For the time period of January 1990 to June 2010 this model has an average error of about .07 percentage points or about 1%.[endnoteRef:30] [26: Table 8 shows White test (as described by H. White in A Heteroskedasticity-consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity, Econometrica, 48 (4), 1980, pp. 817-838) indicates the presence of heteroskedasticity (p=0.0000). ] [27: Figure 8 shows the correlogram of residuals for regression: Mortt= 0 + 1N10Tt + t in order to test for 1st order autocorrelation using the Q-statistics. H0: 1 = 0; HA: 1 0. With. = 0.05, I reject the null hypothesis.] [28: Table 9 show results of Wald test for trend for regression model reported in Table 10. H0: 2=3=0, versus HA: at least one of these betas 0. With = 0.05, I do not reject the null hypothesis.] [29: Using regression results in Table 7, I performed a hypothesis test with H0: 1 = 0; HA: 1 > 0 to test if an increase in nominal 10 year maturity U.S. Treasury stock causes an increase in 30 year fixed mortgage rates. With. = 0.05, I reject the null hypothesis.] [30: Figure 9 shows correlogram of residuals for regression given in Table 7, showing the residuals appear to be white noise (as shown by AC and PAC within the rejection region bands and low Q-stats).]

The ForecastTable 11 (below) is the forecasted mortgage rates for July 2010 through November 2010 measured in percentage points:Table 11: Mortgage Rate ForecastsForecast

July-20104.75

August-20104.76

September-20104.77

October-20104.78

November-20104.78

Forecast mortgage rate is measured in percentage points and is calculated using the regression model reported in Table 7 and future nominal 10 year maturity U.S. Treasury securities yield taken from Holts exponential smoothing forecasts based upon the model reported in Table 12.

To develop this forecast I used the regression model in Table 7 using real data and exploited the patterns to determine a forecast for future mortgage rates [July 2010 to November 2010]. Figure 10 (below) shows actual versus forecast mortgage rates. Actual mortgage rates stop in June 2010 while forecast values go to November 2010.

Figure 10: Mortgage Rates: Actual and Forecast Values(January 1990 November 2010)

Actual Mortgage Rates is based upon data taken from the Board of Governors of the Federal Reserve System. CONTRACT RATE ON 30-YEAR, FIXED-RATE CONVENTIONAL HOME MORTGAGE COMMITMENTSH.15 Selected Interest Rates for Jul 19,2010. ONLINE. 19 July 2010. Available: http://www.federalreserve.gov/datadownload/Download.aspx?rel=H15&series=74bef9826667028ac81f5468a626ef0e&filetype=spreadsheetml&label=include&layout=series [19 July 2010]. Forecast mortgage rate is calculated using the regression model reported in Table 7. Actual Treasury securities yield for January 1990 through June 2010 is based upon data taken from Board of Governors of the Federal Reserve System. Market yield on U.S. Treasury securities at 10-year constant maturity, quoted on investment basis H.15 Selected Interest Rates for Jul 19, 2010. ONLINE. 19 July 2010. Available: http://www.federalreserve.gov/datadownload/Download.aspx?rel=H15&series=74bef9826667028ac81f5468a626ef0e&filetype=spreadsheetml&label=include&layout=series [19 July 2010]. Treasury securities yield for July 2010 through November 2010 based upon Holts exponential smoothing forecast in Table 12.

As one can see, mortgage rates are expected to increase slightly, comparing Junes actual mortgage rate of 4.74 percentage points to Novembers forecast of 4.78 percentage points. I recommend encouraging customers to buy their new home now before the cost of borrowing to finance their new home increases.

AppendixFigure 1: 30-year Fixed Mortgage Rates(January 1990 June 2010)

Board of Governors of the Federal Reserve System. CONTRACT RATE ON 30-YEAR, FIXED-RATE CONVENTIONAL HOME MORTGAGE COMMITMENTSH.15 Selected Interest Rates for Jul 19,2010. ONLINE. 19 July 2010. Available: http://www.federalreserve.gov/datadownload/Download.aspx?rel=H15&series=74bef9826667028ac81f5468a626ef0e&filetype=spreadsheetml&label=include&layout=series [19 July 2010].

Figure 2: 30-year Fixed Mortgage Rates(January 1990 June 2010)


Table 2: Monthly Mean of 30-year Fixed Mortgage Rates(January 1990 June 2010)MonthPercentage points

January7.08

February7.07

March7.13

April7.20

May7.22

June7.20

July7.30

August7.26

September7.14

October7.12

November7.11

December7.01


Table 3: Welch Test for Monthly Seasonality of 30-year Fixed Mortgage Rates(January 1990 June 2010)


Figure 3: Frequency of 30-year Fixed Mortgage Rates in Various Percentage Points Ranges(January 1990 June 2010)


Figure 4: Nominal 10 year Treasury Security Yields(January 1990 June 2010)

Board of Governors of the Federal Reserve System. Market yield on U.S. Treasury securities at 10-year constant maturity, quoted on investment basisH.15 Selected Interest Rates for Jul 19,2010. ONLINE. 19 July 2010. Available: http://www.federalreserve.gov/datadownload/Download.aspx?rel=H15&series=74bef9826667028ac81f5468a626ef0e&filetype=spreadsheetml&label=include&layout=series [19 July 2010].

Figure 5: Nominal 10 year Treasury Security Yields(January 1990 June 2010)


Table 4: Monthly Mean of 10 year maturity U.S. Treasury Securities Yield(January 1990 June 2010)MonthPercentage points

January5.45

February5.45

March5.51

April5.60

May5.65

June5.61

July5.56

August5.48

September5.33

October5.33

November5.31

December5.33


Table 5: Welch Test for Monthly Seasonality of 10 year maturity U.S. Treasury Yied(January 1990 June 2010)


Figure 6: Frequency of Nominal 10 year Treasury Security Yields in Various Percentage Points Ranges(January 1990 June 2010)


Table 6: Descriptive StatisticsJanuary 1990 June 2010MN10T

Mean5.854.10

Standard Error0.060.06

Median5.924.15

Mode5.924.72

Standard Deviation0.520.58

Sample Variance0.270.34

Kurtosis-0.700.24

Skewness-0.46-0.54

Range2.022.69

Minimum4.742.42

Maximum6.765.11

Sum526.09368.70

Count90.0090.00

M [30-year fixed mortgage rates] is measured in percentage points and is taken from the Board of Governors of the Federal Reserve System. CONTRACT RATE ON 30-YEAR, FIXED-RATE CONVENTIONAL HOME MORTGAGE COMMITMENTSH.15 Selected Interest Rates for Jul 19,2010. ONLINE. 19 July 2010. Available: http://www.federalreserve.gov/datadownload/Download.aspx?rel=H15&series=74bef9826667028ac81f5468a626ef0e&filetype=spreadsheetml&label=include&layout=series [19 July 2010]. N10T [Nominal 10 year Treasury Security Yields] is measured in percentage points and is taken from the Board of Governors of the Federal Reserve System. Market yield on U.S. Treasury securities at 10-year constant maturity, quoted on investment basisH.15 Selected Interest Rates for Jul 19,2010. ONLINE. 19 July 2010. Available: http://www.federalreserve.gov/datadownload/Download.aspx?rel=H15&series=74bef9826667028ac81f5468a626ef0e&filetype=spreadsheetml&label=include&layout=series [19 July 2010].

Figure 7: Mortgage Rates & Treasury Securities Yield(January 1990 June 2010)

30 yr Fixed Mortgage Rates is based upon data taken from Board of Governors of the Federal Reserve System. CONTRACT RATE ON 30-YEAR, FIXED-RATE CONVENTIONAL HOME MORTGAGE COMMITMENTSH.15 Selected Interest Rates for Jul 19, 2010. ONLINE. 19 July 2010. Available: http://www.federalreserve.gov/datadownload/Download.aspx?rel=H15&series=74bef9826667028ac81f5468a626ef0e&filetype=spreadsheetml&label=include&layout=series [19 July 2010]. Nominal 10 yr Treasury Securities Yield is based upon data taken from Board of Governors of the Federal Reserve System. Market yield on U.S. Treasury securities at 10-year constant maturity, quoted on investment basis H.15 Selected Interest Rates for Jul 19, 2010. ONLINE. 19 July 2010. Available: http://www.federalreserve.gov/datadownload/Download.aspx?rel=H15&series=74bef9826667028ac81f5468a626ef0e&filetype=spreadsheetml&label=include&layout=series [19 July 2010].

Table 7: 30 year Fixed Mortgage Rates(January 1990 June 2010)

30 yr Fixed Mortgage Rates is measured in percentage points and is based upon data taken from Board of Governors of the Federal Reserve System. CONTRACT RATE ON 30-YEAR, FIXED-RATE CONVENTIONAL HOME MORTGAGE COMMITMENTSH.15 Selected Interest Rates for Jul 19, 2010. ONLINE. 19 July 2010. Available: http://www.federalreserve.gov/datadownload/Download.aspx?rel=H15&series=74bef9826667028ac81f5468a626ef0e&filetype=spreadsheetml&label=include&layout=series [19 July 2010]. Nominal 10 yr Treasury Securities Yield is measured in percentage points and based upon data taken from Board of Governors of the Federal Reserve System. Market yield on U.S. Treasury securities at 10-year constant maturity, quoted on investment basis H.15 Selected Interest Rates for Jul 19, 2010. ONLINE. 19 July 2010. Available: http://www.federalreserve.gov/datadownload/Download.aspx?rel=H15&series=74bef9826667028ac81f5468a626ef0e&filetype=spreadsheetml&label=include&layout=series [19 July 2010]. Estimates corrected for serially-correlated error terms using NLS as described by Ray C. Fair, Specification, Estimation, and Analysis of Macroeconomic Models, Cambridge, MA; Harvard University Press, 1984; pp 210-214. Estimates are corrected for heteroskedasticity using the procedure described in H. White, A Heteroskedasticity-consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity, Econometrica, 48 (4), 1980, pp. 817-838.

Table 8: 30 year Fixed Mortgage Rates: White Test for Heteroskedasticity

Test for heteroskedasticity, as described by H. White in A Heteroskedasticity-consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity, Econometrica, 48 (4), 1980, pp. 817-838.

Figure 8: Correlogram for Residuals(January 1990 June 2010)

Board of Governors of the Federal Reserve System. CONTRACT RATE ON 30-YEAR, FIXED-RATE CONVENTIONAL HOME MORTGAGE COMMITMENTSH.15 Selected Interest Rates for Jul 19,2010. ONLINE. 19 July 2010. Available: http://www.federalreserve.gov/datadownload/Download.aspx?rel=H15&series=74bef9826667028ac81f5468a626ef0e&filetype=spreadsheetml&label=include&layout=series [19 July 2010]. Residuals are from the regression Mortt= 0 + 1N10Tt + t used to test for autocorrelation.

Table 9: 30-year Fixed Mortgage Rates: Wald Test(January 1990 June 2010) Hypothesis test of H0: 2=3= 0, versus HA: at least one of these betas 0. Based upon regression model reported in Table 10

Figure 9: Correlogram for Residuals(January 1990 June 2010)

Board of Governors of the Federal Reserve System. CONTRACT RATE ON 30-YEAR, FIXED-RATE CONVENTIONAL HOME MORTGAGE COMMITMENTSH.15 Selected Interest Rates for Jul 19,2010. ONLINE. 19 July 2010. Available: http://www.federalreserve.gov/datadownload/Download.aspx?rel=H15&series=74bef9826667028ac81f5468a626ef0e&filetype=spreadsheetml&label=include&layout=series [19 July 2010]. Residuals are from the regression summarized in Table 7.

Table 10: 30 year Fixed Mortgage Rates(January 1990 June 2010)

30 yr Fixed Mortgage Rates is measured in percentage points and is based upon data taken from Board of Governors of the Federal Reserve System. CONTRACT RATE ON 30-YEAR, FIXED-RATE CONVENTIONAL HOME MORTGAGE COMMITMENTSH.15 Selected Interest Rates for Jul 19, 2010. ONLINE. 19 July 2010. Available: http://www.federalreserve.gov/datadownload/Download.aspx?rel=H15&series=74bef9826667028ac81f5468a626ef0e&filetype=spreadsheetml&label=include&layout=series [19 July 2010]. Nominal 10 yr Treasury Securities Yield is measured in percentage points and based upon data taken from Board of Governors of the Federal Reserve System. Market yield on U.S. Treasury securities at 10-year constant maturity, quoted on investment basis H.15 Selected Interest Rates for Jul 19, 2010. ONLINE. 19 July 2010. Available: http://www.federalreserve.gov/datadownload/Download.aspx?rel=H15&series=74bef9826667028ac81f5468a626ef0e&filetype=spreadsheetml&label=include&layout=series [19 July 2010]. @TREND is a linear trend variable. @TREND^2 is a quadratic trend variable. Estimates corrected for serially-correlated error terms using NLS as described by Ray C. Fair, Specification, Estimation, and Analysis of Macroeconomic Models, Cambridge, MA; Harvard University Press, 1984; pp 210-214. Estimates are corrected for heteroskedasticity using the procedure described in H. White, A Heteroskedasticity-consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity, Econometrica, 48 (4), 1980, pp. 817-838.

Table 11: Mortgage Rate ForecastsForecast

July-20104.75

August-20104.76

September-20104.77

October-20104.78

November-20104.78

Forecast mortgage rate is measured in percentage points and is calculated using the regression model reported in Table 7 and future nominal 10 year maturity U.S. Treasury securities yield calculated from Holts exponential smoothing forecasts based upon the model reported in Table 12.

Table 12: Holts Smoothing of Treasury Yields(January 1990 November 2010)

Nominal 10 year maturities U.S. Treasury securities yield is based upon data taken from Board of Governors of the Federal Reserve System. Market yield on U.S. Treasury securities at 10-year constant maturity, quoted on investment basisH.15 Selected Interest Rates for Jul 19,2010. ONLINE. 19 July 2010. Available: http://www.federalreserve.gov/datadownload/Download.aspx?rel=H15&series=74bef9826667028ac81f5468a626ef0e&filetype=spreadsheetml&label=include&layout=series [19 July 2010].

Figure 10: Mortgage Rates: Actual and Forecast Values(January 1990 November 2010)

Actual Mortgage Rates is based upon data taken from the Board of Governors of the Federal Reserve System. CONTRACT RATE ON 30-YEAR, FIXED-RATE CONVENTIONAL HOME MORTGAGE COMMITMENTSH.15 Selected Interest Rates for Jul 19,2010. ONLINE. 19 July 2010. Available: http://www.federalreserve.gov/datadownload/Download.aspx?rel=H15&series=74bef9826667028ac81f5468a626ef0e&filetype=spreadsheetml&label=include&layout=series [19 July 2010]. Forecast mortgage rate is calculated using the regression model reported in Table 7. Actual Treasury securities yield for January 1990 through June 2010 is based upon data taken from Board of Governors of the Federal Reserve System. Market yield on U.S. Treasury securities at 10-year constant maturity, quoted on investment basis H.15 Selected Interest Rates for Jul 19, 2010. ONLINE. 19 July 2010. Available: http://www.federalreserve.gov/datadownload/Download.aspx?rel=H15&series=74bef9826667028ac81f5468a626ef0e&filetype=spreadsheetml&label=include&layout=series [19 July 2010]. Treasury securities yield for July 1990 through November 2010 based upon Holts exponential smoothing forecast in Table 12.

Bibliography

"Conventional Mortgage." InvestorWords.com. http://www.investorwords.com/1097/conventional_mortgage.html/ (accessed May 27, 2010).Fannie Mae. "About Fannie Mae." FannieMae. 2010. http://www.fanniemae.com/kb/index?page=home&c=aboutus (accessed June 21, 2010).Federal Trade Commission: Bureau of Consumer Protection: Division of Consumer and Business Education. "Facts for Consumers: Mortgage Servicing: Making Sure Your Payments Count." Federal Trade Commission: Protecting America's Consumers. June 7, 2010. http://www.ftc.gov/bcp/edu/pubs/consumer/homes/rea10.shtm (accessed June 21, 2010).Freddie Mac. "About the Primary Mortgage Market Survey (PMMS): About Freddie Mac." Freddie Mac. 2010. http://www.freddiemac.com/pmms/abtpmms.htm (accessed July 19, 2010).Gross, Daniel. "The Recession Is...Over?" Newsweek. July 14, 2009. http://www.newsweek.com/2009/07/13/the-recession-is-over.html (accessed July 19, 2010).Hoovers. "Industry Overview: Mortgage Banking." Hoovers: a D&B Company. 2010. http://www.hoovers.com/mortgage-banking/--ID__176--/free-ind-fr-profile-basic.xhtml (accessed July 9, 2010).Marchinone, Karen. "Bank of America Catapults to #1 Position in Online Mortgage Lending with the Acquisition of Countrywide." Compete. 25 January, 2008. http://blog.compete.com/2008/01/25/bank-of-america-countrywide-merger-online-mortgage/ (accessed July 9, 2010).Market Folly. "World's Largest Hedge Funds." Market Folly. March 9, 2010. http://www.marketfolly.com/2010/03/worlds-largest-hedge-funds.html (accessed July 9, 2010).Mortgage-X. "Treasury Market and Mortgage Rates." Mortgage-X: Mortgage Information Service. 2010. http://mortgage-x.com/general/treasury.asp (accessed July 23, 2010).National League of Cities. "National League of Cities: Corporate Partner: Wells Fargo." National League of Citites. http://www.nlc.org/inside_nlc/membership/corporate_partners_program/11734.aspx (accessed July 9, 2010).Nielsen, Barry. "How Interest Rates Affect The Housing Market." Investopedia. 2010. http://www.investopedia.com/articles/pf/07/mortgage_rate.asp (accessed July 21, 2010).Rueters. "Citgroup to Cut Mortgage Exposure by $45 Billion." CNBC. March 6, 2008. http://www.cnbc.com/id/23506350/Citigroup_to_Cut_Mortgage_Exposure_by_45_Billion (accessed July 7, 2010).Wells Fargo. "Mark C. Oman: ." Wells Fargo. May 2010. https://www.wellsfargo.com/about/corporate/executive_officers/oman (accessed July 9, 2010).Wikinvest. "Bank of America (BAC)." Wikinvest. 2010. http://www.wikinvest.com/stock/Bank_of_America_(BAC) (accessed July 9, 2010).. "Citigroup (C)." Wikinvest. 2010. http://www.wikinvest.com/wiki/CITIBANK (accessed July 9, 2010).. "J P Morgan Chase (JPM)." Wikinvest. 2010. http://www.wikinvest.com/stock/J_P_Morgan_Chase_(JPM) (accessed July 9, 2010).. "Wells Fargo (WFC)." Wikinvest. 2010. http://www.wikinvest.com/wiki/Wells_Fargo_(WFC) (accessed July 9, 2010).

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Mortgage Rates Forecast