When it comes to mortgage rates, 2008 may be remembered as the year the market went haywire.
Near the start of the year, some long-term mortgages were around 6 percent, but by July the average rate approached 7 percent. In October, rates jumped by half a percentage point during one seven-day period, then dropped by the same amount the next week, only to surge again a week later.
"We thought the refinancing boom of the late '80s was a wild time," said Sharon Heitman, the owner of the Heitman Group, a mortgage consulting firm. "But I've truly not seen anything like this."
In years past, Heitman noted, mortgage rates followed fairly predictable trends. They would generally increase toward the end of a year, then hold steady through midwinter. By late February or early March, they would head lower and remain in a range until late fall.
But those patterns seemed to change about six years ago, she said, as lenders began aggressively packaging loans as investment securities. While that may have added financing sources, it also caused volatility.
The credit crunch and financial crisis have dried up the market for mortgage-backed securities, leaving many lenders with little or no money for borrowers.
Interest rate swings, meanwhile, grew more pronounced as Fannie Mae and Freddie Mac, the government agencies that buy mortgages from lenders, began increasing the fees they charge to help shore up their own finances.
Rates on 30-year fixed-rate mortgages, the most commonly held home loans, opened 2008 at 6.07 percent, with some lenders offering rates even lower, according to Freddie Mac. In the Northeast, rates were hovering slightly higher, at 6.14 percent.
By late December, the national average had dropped to roughly 5.1 percent, with some lenders offering rates just below 5 percent.
In many weeks in between, there was a huge spread.
Heitman, who receives interest-rate data daily from mortgage lenders, said that in years past the highest and lowest rates on a given day might have been separated by about a tenth of a percentage point. If a lender reported an interest rate significantly higher than the prevailing market rate, she said, she would call the company. "And it was usually an error," she added.
In recent months, however, the spread stretched to half a percentage point on some days. The higher rates reflected some lenders' concerns about whether borrowers would be able to repay their loans in a souring economy, or whether banks could resell the loans to investors anytime soon.
For borrowers, though, 2008 highlighted the importance of shopping around - a habit that mortgage industry executives say is still not practiced widely enough.
Because a mortgage broker typically sells loans on behalf of perhaps 10 lenders, at most, a borrower could be offered a range of loans that does not include the market's lowest.
Loan officers working at banks can sometimes offer other lenders' products, but they typically give borrowers fewer loan options than brokers.
This is not to say that borrowers can afford simply to skip banks in favor of brokers - last year, local banks offered some of the lowest mortgage rates on the market.
Borrowers might simply do well to exercise considerable patience while shopping around, and hope that the mortgage roller coaster slows down in 2009.
