How Low Can Mortgage Rates Go?

The Federal Reserve's move to buy up to $1.25 trillion in mortgage-backed securities helped lower interest rates last week to below the 5 percent level for conventional prime 30-year fixed loans. But how low will mortgage rates go?

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If you need a mortgage, here's your chance. Rates fell last week after the Federal Reserve said it would buy well over $1 trillion in mortgage-backed securities and long-term treasury bonds. These moves were intended to get credit flowing. NPR's Yuki Noguchi has this report on what the analysts are forecasting.

YUKI NOGUCHI: The last time we had a stretch when rates on your standard conforming 30-year-fixed mortgage at below 5 percent was about a half century ago. But then, last week, rates hit four and three-quarters. Tom Lawler is an economist who follows the housing market.

TOM LAWLER: The impact the Fed's movement has had has been direct, and it's already been seen.

NOGUCHI: Is that the lowest it could possibly go? Or...

LAWLER: Oh, no, no. There is no - you know, possibilities are endless.

NOGUCHI: He says Congress may alter bankruptcy law to give judges leeway in reducing mortgage payments, and there are always possible new mortgage modification programs, any of which could influence rates.

LAWLER: Where interest rates are going from now is one of those wonderful questions that if I knew for sure, I would speculate on the bond market, make tons of money and never would have to talk to people like you.

NOGUCHI: Which, of course, would be a huge perk. Not everyone can get those low mortgage rates. Banks are requiring higher credit scores these days, and homes that have lost too much in value may not qualify for refinancing. Also, rates on jumbo loans of more than $417,000 are still higher than 6 percent because the government doesn't guarantee or securitize those loans. Very low interest rates have another affect, as well.

LAWLER: The volume gets to, quote, "unbelievably high levels." It is sometimes not easy to get a hold of your lender. And there aren't as many of them as there used to be, because so many people in the mortgage industry, you know, ain't around no more.

NOGUCHI: Jay Brinkmann is chief economist for the Mortgage Bankers Association. He is predicting a total of $3 trillion in refinancings or new home loans will be processed this year. And that huge demand creates some serious choke points. Home appraisers are overbooked and bank office systems are overloaded. One of the biggest problems, he said, is that the short-term credit necessary for banks to grant loans has been greatly reduced. Brinkmann used to call very low rates "I Love Lucy" rates, as in unless you watch the show when it first aired, you probably haven't seen rates that low since.

JAY BRINKMANN: We have now gone below the "I Love Lucy" rates in terms of where things are now. And so you have now exceeded my ability to attempt to predict.

NOGUCHI: Brinkmann says his own bottleneck has so far foiled his plans to refinance.

BRINKMANN: I look at screen prices all day long, but the idea of having the time to pick up a phone and call a loan officer and get the thing going - unfortunately, I've been working 12 hours a day.

NOGUCHI: He says he hopes the rates will stay down long enough that soon, he'll make that call.

Yuki Noguchi, NPR News.

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