WASHINGTON — Rates on 30-year mortgages plunged this week to the lowest level since January after the government launched a sweeping new effort to aid the U.S. housing market.
Mortgage-finance giant Freddie Mac reported Thursday that average rates on 30-year fixed-rate mortgages dropped to 5.53 percent in the largest one-week drop in 27 years. That was down from 5.97 percent last week, and the lowest since the week of Jan. 24, when it was at 5.48 percent.
Further drops could be on the way if the government launches an industry-backed plan to lower the rate on a 30-year mortgage to 4.5 percent by spending hundreds of billions to buy mortgage-backed securities issued by Fannie Mae and Freddie Mac.
That would follow an effort announced last week by the Federal Reserve, which is planning to purchase up to $600 billion in mortgage-backed securities and other debt issued by Fannie and Freddie and the Federal Home Loan Banks. Those institutions don’t make loans directly to consumers but provide money to the mortgage market by packaging loans into investments.
The Fed’s move caused rates to immediately drop by about half a point, and many in the real estate industry hope rates will keep dropping as the government increases efforts to battle the credit crisis.
Rates “are now almost a full percentage point lower since the last week in October,” Freddie Mac chief economist Frank Nothaft said in a statement.
Bringing mortgage rates down is positive, but it “doesn’t help people that currently have unaffordable mortgages because it doesn’t help them refinance,” Sheila Bair, chairman of the Federal Deposit Insurance Corp., said Thursday. “Low interest rates help some consumers, but the ones that really need help and can’t refinance are not helped.”
