Mortgage rates fell and telephones started ranging at mortgage providers across Western Pennsylvania Wednesday after the Federal Reserve's move to buy $600 billion in debt and free up credit markets.
Word of the new program on Tuesday sent rates down nearly a full percentage point, to around 5.5 percent on a 30-year, fixed-rate loan, from 6.38 percent earlier in the day. Yesterday, the 30-year, fixed-rate loan bobbed around the 5.8 percent mark.
"Loan activity and interest in loans certainly flared after the Fed's announcement," said Keith Gumbinger, spokesman for HSH Associates, Financial Publishers, a Pompton Plains, N.J., company which tracks loan rates. "No doubt many borrowers have been waiting for rates to hit a certain point, with either their loans in process or nearly complete."
The lower rates are expected to impact purchases and refinancings, experts said. Many lenders said it was welcome to have phones ringing.
"Actually, we had probably four to five times the number of daily calls than we've had daily during the last couple weeks," said Jim Carroll, vice president at Dollar Savings Bank in Pittsburgh, yesterday. "And this is the day before Thanksgiving."
"Everyone hopes this announcement helps break the ice on mortgage lending," Carroll said. "Right now, it's a question of customer confidence."
The Fed pledged to spend $500 billion to buy mortgage securities backed by secondary lenders Fannie Mae and Freddie Mac, along with securities backed by Ginnie Mae, which guarantees investors payments on securities backed primarily by Federal Housing Administration-insured loans. The Federal Reserve agreed to purchase $100 billion of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
The low rates aren't for everyone looking to refinance a mortgage or purchase a home. Given the mortgage meltdown, which continues to negatively impact the nation's economy, banks aren't willing to lend to anyone.
"I would say that for the best rate, an applicant would have to have a credit score better than 740, and probably have 20 percent down," said Brad McLean, vice president with West Penn Financial Services in Pittsburgh.
"The best prices are available to the best of the best applicants," Gumbinger agreed. Higher down payments or equity in a property will be needed in markets that have suffered the most, Gumbinger added. Ten percent down could be adequate in some areas.
"And since the Fed said it's going to be buying up Ginnie Mae mortgage-backed securities, that includes FHA loans, and those can be 3-1/2 percent down," Gumbinger said.
The big question is, will the rate dip hold, or will it be just another decrease, followed by a similar increase, which has been the trend in the mortgage markets for months.
"If you ask me, 'Should these rates stick?,' they should," McLean said. "If you ask 'Will they stick?' I don't know. Will this help get things moving? It should."
Gumbinger said this week's rate drop came after the Federal Reserve outlined its new program. Once details and a timetable are finalized, low rates could continue.
"We think that rates for now are likely to stabilize now in the 5.5 percent to 6.2 percent range," Gumbinger said.
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