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Mortgage Rates Falling as Fed's New Plan is Put into Action

Posted on 19 Mar 2009

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Those with a good job, solid credit and a home value that hasn't fallen dramatically are likely to benefit from the Federal Reserve's extraordinary action Wednesday designed to help drive mortgage rates to historic lows and revive the U.S. housing market.

The Fed's plan to buy up to $300 billion of long-term government bonds and $750 billion in additional mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac, should benefit many -- but not all -- borrowers.

It's likely to produce a big—though perhaps temporary—drop in mortgage rates.

Rates rates on 30-year fixed-rate mortgages fell to 4.79 percent on Thursday, down over 0.40 percentage point from Wednesday, according to the Zillow Mortgage Rate Monitor, compiled by real estate website

For the latest week, rates on 30-year fixed-rate mortgages fell 0.05 percentage point to an average 4.98 percent, with an average 0.7 point, according to a survey released Thursday by home funding company Freddie Mac.

"It's going to keep rates low for a longer period of time," said Greg McBride, senior financial analyst at

Average rates for 30-year-fixed-rate mortgages hit a record low of 4.96 percent in January, according to mortgage finance company Freddie Mac. That was after the Fed launched its initial plan to buy $500 billion in mortgage-backed securities.

The Fed, seeking to push rates down further, is effectively planning to buy at least half of the home loans made in the U.S. this year based on last year's total of about $1.4 trillion in mortgages. Around 70 percent of new loans in recent months have been backed by Fannie and Freddie, the mortgage finance companies seized by government regulators in September.

Fannie and Freddie own or guarantee almost 31 million mortgages worth about $5.5 trillion, more than half of all U.S home mortgages.

The Fed actions were great news for John Tuggle, a mortgage banker in Columbus, Ga., where the economy and housing market have remained relatively healthy.

His business already had been looking up this year due to a new $8,000 tax credit for first-time buyers, and the Fed's moves amounted to icing on the cake.

"Bottom line is, those people who already are gainfully employed and can qualify for mortgage can buy more of a house," Tuggle said. "Whenever you see rates drop, people that are on the fence thinking about buying a house, they jump in and buy."