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If you've got a good job, solid credit and your home's value hasn't fallen dramatically, you're likely to benefit from the Federal Reserve's extraordinary action Wednesday 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 Zillow.com.
"It's going to keep rates low for a longer period of time," said Greg McBride, senior financial analyst at Bankrate.com.
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.
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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."
Still, mortgage lenders have severely restricted the availability of new loans to borrowers who don't have 20 percent down payments and good credit, making it tough for many first-time borrowers to qualify.
"These lenders are making their credit criteria so outrageous," said Dana Devine, a real estate agent in Apollo Beach, Fla., south of Tampa. "It's that credit score that's killing everybody."
Many lenders, after laying off workers in droves, are swamped with applications for refinanced loans. With so much business, there is less pressure to compete, and lenders have not pushed rates down as far as might be expected given their extraordinarily low borrowing costs, said Guy Cecala, publisher of Inside Mortgage Finance, a trade publication.
"They're looking to boost profitability," Cecala said. "Many of them already have all the business they can handle for the foreseeable future."
While the Fed's actions are likely to aid those who have saved up to make a down payment on their house, or have enough equity in their homes to refinance, they are less likely to benefit the nearly 14 million American households that owe more on their home loans than their houses are worth, or those on the verge of foreclosure.
The mortgage industry, armed with $75 billion in federal bailout money that President Barack Obama wants to use to prevent foreclosures, is receiving record-high levels of requests for help from troubled homeowners.
More than 13,500 homeowners a day have called the Homeownership Preservation Foundation's 1-888-995-HOPE hot line since the Obama administration's program launched earlier this month, about triple the daily level of calls received before the plan was announced.
Mortgage applications jumped 21 percent last week from a week earlier, as low interest rates fueled refinancing activity, according to the Mortgage Bankers Association. About 73 percent of applications came from borrowers seeking to refinance home loans at lower rates.
Also Wednesday, Fannie Mae said the volume of mortgage loans it refinanced in February totaled $41 billion, nearly triple January's volume.
The mortgage finance company said Wednesday it was the largest figure in almost a year as a surge of homeowners took advantage of low interest rates and higher loan limits.
The Fed's actions mirror those being taken across the Atlantic, where the Bank of England last week began buying government bonds from financial institutions as it turned to other ways to help revive Britain's moribund economy. The Bank of England, like the Fed, already had lowered its key interest rate to a record low of 0.5 percent.
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