Mortgage rates fall, if you can get a loan

Average is now 5.76 percent, but brokers say securing refinancing difficultNEW YORK - Mortgage rates fell for the second day in a row Wednesday, and could be heading toward levels home buyers and owners haven’t seen this year.

That drop is what the Federal Reserve was aiming for when it announced a plan Tuesday to buy $600 billion in mortgage-related securities in an effort to slow falling home prices and rising foreclosures, while kick starting demand among fearful homebuyers.

The average interest rate on a 30-year fixed-rate mortgage Wednesday was 5.76 percent, the lowest it has been since February, according to HSH Associates, which publishes mortgage information. The lowest daily figure this year was 5.47 percent on Jan. 23.

Mortgage brokers fielded a steady stream of calls Wednesday from borrowers looking to refinance. But some of those callers were confronted with an unwelcome truth: only those with good credit histories and equity in their properties need apply. And with the damage wrought by the real estate downturn, now in its third year, that number has declined dramatically.

Lower rates won’t mean much for the more than 4 million homeowners who are already behind on their mortgage payments, or the 12 million homeowners who owe more money to the bank than their homes are now worth.

“This will help the non-troubled borrower, the standard consumer who is making payments on time,” said Mike Larson, real estate analyst with Weiss Research. “For the troubled borrower, you really have to look at some other avenues,” including modifying their existing mortgage with their current lender.

Rates react to supply, demand and risk associated with certain securities. Mortgage rates have hovered stubbornly around 6 percent for months.

With this week’s announcement to buy $600 billion in mortgage-related securities, the Fed became the 800-pound gorilla in the market. The Fed’s demand for securities will drive prices higher, and yields and (with luck) interest rates lower.

“If these rates hold, you’ll see these refinance applications really start to take off next week,” said Marc Savitt, president of the National Association of Mortgage Brokers.

Already, some homeowners were lining up on Wednesday.

Brenda Pittsnogle and her husband are combining their first and second mortgages, with rates of 5.875 and 6.5, in a refinancing deal at 5.375 percent. That will save the couple $170 a month.

They had been waiting for the past six or seven months for interest rates to fall this low.

“We’re elated,” said Pittsnogle, of Kearneysville, W.Va. “We really never thought that it would go down as far as it has.”

Meanwhile, homebuyers who have been waiting patiently at the starting line may be enticed to take the Fed’s action as a starter’s gun. Lower rates and falling prices make the market more attractive for qualified buyers.

Compared to the 6.75 percent interest rate homebuyers paid on Oct. 15, at Wednesday’s rate borrowers would save $106 a month if they bought the U.S. median priced home of $183,300 with a 10 percent down payment.

“It really gives a confidence boost to people shopping for homes and everybody thinking, ‘Wow mortgage rates are so low, I should think about doing something,”’ Guy Cecala, publisher of Inside Mortgage Finance, who expects rates to drop as low as nearly 5 percent by the end of the year.

While troubled borrowers generally won’t benefit from the Fed’s move in terms of refinancing, it can help them in other ways. For example, the lower rates could make lenders more willing to modify mortgages of distressed borrowers, experts said.

“There are programs in place for you if you are having troubles,” said Keith Gumbinger, vice president of HSH Associates. “(The Federal Reserve’s plan) is aimed at the vast majority of American homeowners who have done nothing wrong but have been affected by what’s happening in the housing market.”

Homeowners who may be most interested in refinancing include those who have adjustable-rate mortgages that have reset to higher rates or will in the coming months.

“Refinancing waves are a great cleansing process for the mortgage market,” Cecala said. “It brings in new home buyers or borrowers as well as lowering the payments of existing buyers. It makes the mortgage market look much healthier.”