Mortgage interest rates are back to their highest levels in a year — and may creep higher still.

After hitting a five-month low in early May, rates have made an abrupt turnaround

The average rate for a 30-year fixed rate mortgage for loans under $417,500 hit 3.9% for the week ended Friday, the Mortgage Bankers Association said Wednesday.

That’s the highest since May 2012, and up from 3.59% for the week ended May 3.

Mortgage rates are moving higher, but are still near all-time lows.

The latest increase spurred a 12% drop in refinance applications for the week, the largest single week drop in refinance applications this year, the MBA says.

The rise in rates has “been a very dramatic move,’ says Bob Walters, chief economist for Quicken Loans. “Mortgage rates have jumped more in the past week than they have in years.”

Rates had been trending higher all month on the strength of good economic reports. They really moved last week, Walters says, as markets reacted to mixed signals from the Federal Reserve that raised the possibility it might begin to taper its purchases of mortgage-backed securities and Treasury bonds sooner rather than later. Those purchases have helped keep interest rates low.

“That’s created a little panic wobble,” says Keith Gumbinger of mortgage tracker HSH.com.

Mortgage rates follow the yield on 10-year Treasury notes, which finished at 2.12% Wednesday, up from a low of 1.63% earlier this month.

Even if rates head higher from here, they won’t go very far, very fast, says Frank Nothaft, Freddie Mac’s chief economist.

“We’re seeing the first steps in a gradual uptick,” Nothaft says.

Freddie Mac reports its weekly survey data Thursday.

For the week ended May 23, it showed 30-year rates averaging 3.59%. Nothaft expects them to move above 4% sometime next year.

The Fed has said it will keep its monetary policy in place until unemployment hits 6.5%, assuming inflation is in check, With unemployment running at 7.5%, no big changes are likely, Nothaft says.

While higher rates have cooled refinance activity in recent weeks, they could spur some fence sitters, says Doug Lebda, Lending Tree’s CEO. Given the rise in home prices the past year, some lenders are also loosening guidelines so more people can refinance, Lebda says.

Some loan shoppers, in recent weeks, have also quickly adapted to rising rates by switching to 10-year-loans, which carry lower interest rates than the 30-year fixed rate loans, Walters says.

Nationwide, more than 45% of homeowners with a mortgage had interest rates above 5% as of December, shows data from market watcher CoreLogic. Many of those homeowners probably lack enough equity in their homes to qualify for a new loan.

Home buyers, meanwhile, are not likely to be put off by higher rates, which are still very low, says economist Christopher Thornberg of Beacon Economics. Instead, if rates keep drifting up, “you might spike the market for six months as people rush to buy,” he says.

Thornberg expects interest rates to settle between 4% and 5% next year.

SOURCE: USA Today

Mortgage rates rose this week but stayed near their historic lows. Cheaper mortgages have helped the economy by spurring more home-buying and refinancing.

The average rate for a 30-year fixed mortgage jumped to 3.51% from 3.42% last week, according to mortgage finance giant Freddie Mac, which conducts a weekly survey of mortgage issuers nationwide.

That’s still near the average of 3.31% reached in November, the lowest on records dating to 1971.

The average on the 15-year fixed mortgage rose to 2.69%. That’s up from 2.61% last week, which was the lowest on records going back to 1991.

Low mortgage rates have helped sustained the housing recovery that began last year. Home sales and construction are up from a year ago, and prices are rising in most U.S. markets.

Millions of homeowners around the country have received an unexpected message from their banks: Goodbye.

After years of collecting mortgage payments from as many people as they could, big U.S. banks such as Bank of America and Wells Fargo are scaling back. As servicing mortgages grows less lucrative, they’re selling the rights to do so in deals measured by the billions.

The buyers are specialty companies much less known to the public. And as the massive transfers take place, regulators have signaled they are concerned about a small but growing fraction of homeowners who report falling through the cracks.

Some have found their online accounts unavailable. Others have reported delays in receiving account numbers. The details of some promised loan modifications haven’t been carried through with the new servicer.

In Charlotte, one man said his short sale, arranged with Bank of America, wasn’t honored after the mortgage was transferred. The home is now in foreclosure.

Tales like these have led the Consumer Financial Protection Bureau and Conference of State Bank Supervisors to warn the industry they’ll be paying close attention to how the handoffs work.

Mortgage servicers aren’t bracing for fines and penalties, industry watchers say, but they are investing more energy in making sure their data technology is up to speed.

“It’s something everybody in the business is paying serious attention to,” said Don Lampe, an attorney with the Dykema law firm who represents financial institutions.

Both Bank of America and Wells Fargo said they’re working carefully with customers to make sure their accounts are handled correctly.

The loans’ new owners, too, have beefed up teams to respond to consumer complaints. But they say they have a track record of handling the vast majority of loans successfully.

“We’ll have 2.5 million consumers that we service loans for,” said Executive Vice President Marshall Murphy of Texas-based Nationstar Mortgage Holdings, which earlier this year bought the rights to service $215 billion in loans from Bank of America. “Of course you’re going to have some instances where the consumer has not had a great experience. We’re trying to do all we can – one, to minimize that, and two, to address the problems that do arise.”

BIG BANKS WANT OUT

Servicing large mortgage portfolios has become less attractive for big banks for several reasons. Proposed capital rules count mortgage servicing rights as riskier than they were before, meaning banks have to keep a greater cash cushion against losses on those loans.

At the same time, the cost of servicing has increased significantly. Five big banks, including Bank of America and Wells Fargo, now have to abide by a slate of several hundred rules mandated by a massive state and federal settlement. The Consumer Financial Protection Bureau also has more stringent servicing standards going into effect next year.

“Servicers have a tremendous amount of obligations now,” said Keith Gumbinger, vice president of mortgage industry publication HSH.com. “It’s become a more burdensome opportunity.”

But that way of doing business isn’t new to the three primary companies doing the buying – Nationstar, Ocwen Financial Corp. and Walter Investment Management Corp., which services under the name of its subsidiary, Green Tree.

Unlike the big banks, which set up their mortgage servicing operations to handle large numbers of people with minimal involvement, the specialty servicers were designed for just the opposite, with more one-on-one service, Sterne Agee analyst Henry Coffey said.

Bank of America has sold the top three companies at least $316 billion of its mortgage servicing portfolio since last June. Wells Fargo sold about $12 billion in a reverse mortgage portfolio, and executives have signaled that it might consider more. J.P Morgan Chase, Ally Financial, MetLife and others have done the same.

The shift is huge. Nearly $500 billion in mortgages have moved over the past few months, and one company estimates that as much as one-fifth of the $10 trillion U.S. mortgage market could ultimately change hands.

The specialty servicers taking on these mortgages are growing rapidly and stand to make hundreds of millions of dollars. The three primary companies increased their earnings more than $170 million last year as the sales began, and analysts following the industry are bullish on their prospects.

Nationstar doubled its servicing portfolio with just one Bank of America transaction.

“Bank of America’s actions alone are creating a major shift in the market,” Michael Drayne, senior vice president of government-owned mortgage bond backer Ginnie Mae, said in a Q&A distributed to stakeholders in April. “We don’t see this trend slowing down any time soon.”

‘THERE HAVE BEEN PROBLEMS’

But regulators have grown concerned that customers’ information is being lost through all the technological transfers. All three of the specialty servicers rank in the top 10 of a database of mortgage complaints maintained by the Consumer Financial Protection Bureau, and the number has been accelerating. “While I don’t think there have been considerable problems, there have been problems,” said John Prendergast, vice president of supervision at the Conference of State Bank Supervisors. “We’re trying to talk to the industry now, and clearly lay out our expectations on what they need to do.”

He said he couldn’t comment on legal actions that might be taken. But regulators have been cautioned by botched transfers in the past, he said.

A Charlotte man, who asked not to be named because he was embarrassed by the situation, said he had a short sale arranged with Bank of America on a rental property.

His loan was then transferred to Nationstar, which re-started the short sale verification process. He said it ultimately was denied, and the house is now in foreclosure.

George Erdle of Charlotte said it took several months after he learned his mortgage was being sold by Bank of America to Green Tree for his account to be set up with the new servicer.

He said he still can’t access his account online, and repeated calls to Green Tree haven’t borne fruit.

“It’s really been a pain,” he said. “Service, I give it an F.”

J.D. Power and Associates ranked Nationstar and Ocwen at the bottom of its mortgage servicer ratings last year. Green Tree wasn’t polled.

“Expertise in business and excellence in customer service don’t necessarily go hand in hand,” Gumbinger said. “The point of the servicer is to handle the loan for the investor. Does that necessarily mean you’re going to get fantastic customer service or a sympathetic ear? No.”

Ocwen, in particular, is known for heavy use of overseas employees, which can frustrate customers who have trouble communicating with those workers. About 40 percent of its office space is in overseas facilities, securities filings show.

Fitch Ratings has also expressed concerns about the company’s “offshore staffing approach,” Ocwen disclosed earlier this year.

Similarly, Nationstar is seeking to quadruple its overseas workforce, from about 250 to 1,000, Wells Fargo analysts wrote in a research note.

Murphy, the executive vice president, said customers’ personal contacts will remain in the U.S.

Still, industry defenders say their negative reputation comes from the fact that they handle some of the country’s most troubled mortgages. The big banks in the business don’t have stellar reputations in this regard, either.

“Anytime you mention the word mortgage, or touch the word mortgage, there’s risk, particularly in this environment,” Coffey said. “The open question has to be who’s good at managing that risk and how much substance is there to the complaints.

“I think the specialty servicers have proven that they know what they’re doing.”

BIG BANKS SELL MORTGAGE-SERVICING RIGHTS

June 2012: Bank of America sells $10.1 billion in Freddie Mac loans to Ocwen Financial Corp.

Oct. 24, 2012: Ocwen and Walter Investment Management Corp. announce they will buy a $374 billion servicing portfolio from a subsidiary of Ally Financial.

Jan. 7, 2013: Bank of America announced the sale of 2 million home loans, with a balance of $306 billion. Nationstar Mortgage Holdings disclosed that it purchased $215 billion of that. Walter Investment Management Corp. took the rest. Walter Investment services accounts under the name of its subsidiary, Green Tree.

Jan. 7, 2013: Walter Investment Management takes on MetLife Bank’s servicing platform, including $70 billion in home loans.

April 9, 2013: Wells Fargo sells $12.2 billion in unpaid balance on 76,000 reverse mortgages to Walter Investment Management.

Fair Isaac Corporation (NYSE: FICO) the company behind the credit reports of the same ticker name, is widening the lens through which it peers at consumer behavior by taking its consumer behavior monitoring platform to social networks including Facebook, Twitter, and others. The company on Monday announced the acquisition of social network analysis firm Infoglide Software.

Infoglide has created technology that searches social networks for “suspicious information in an insurance claim or financial transaction, then [makes] links with other transactions to expose otherwise invisible patterns.”

According to Infoglide CEO Will Lansing the software helps to “identify non-obvious relationships,” while eliminating false-positive results.

Fair Isaac will use its acquisition to “improve fraud detection, security and compliance” for its FICO score system.

FICO notes that Infoglide has “a strong foothold” in the governmental sector, allowing agencies to use Infoglide’s software to root out fraud by corporate insiders, uncover money laundering schemes, and potentially expose terrorist networks.

The full social network reach of FICO’s new system is not known.