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Rates Drop as Obama Signs Stimulus Plan

Associated Press
Saturday, February 21, 2009

The average U.S. rate on a 30-year, fixed mortgage fell this week as President Obama enacted an economic stimulus and pledged $275 billion to reduce foreclosures.

The rate fell to 5.04 percent from 5.16 percent a week earlier, said Freddie Mac, a mortgage lender in McLean. A year ago, the 30-year, fixed-rate mortgage averaged 6.04 percent. Rates are falling as the Federal Reserve buys mortgage-backed securities to encourage lenders to lower rates.

"That will probably help the housing market, and I think it'll have a good effect on interest rates," said George Mokrzan, senior economist at Huntington National Bank in Columbus, Ohio. "We're seeing that already."

The Obama administration is seeking ways to reduce the number of foreclosures and spur demand as the housing recession enters its fourth year. Part of the plan calls for the federal government to match reductions that lenders would make in interest rates aimed at lowering borrowers' payments to 31 percent of their monthly income.

Last week, Obama also signed a stimulus package including an $8,000 tax-credit for first-time home buyers.

The actions come as U.S. new-home sales plummeted in December to the lowest ever. The median price of an existing home slumped 15 percent, the biggest drop since record keeping began in 1968, the National Association of Realtors said.

Mortgage applications in the United States rebounded last week from a three-month low as consumers took advantage of lower interest rates to refinance home loans.

The Mortgage Bankers Association's index of applications to purchase a home or refinance a loan increased 46 percent, to 875.3, in the week ended Feb. 13 from 600.6 the week before. The group's refinancing measure jumped 64 percent, and the purchase index climbed 9.1 percent.

Freddie Mac also reported that the average 30-year, fixed rate dipped to 4.96 percent the week of Jan. 15, the lowest on record.

This week's 15-year, fixed rate fell to 4.68 percent from 4.81 percent last week.

Average rates on five-year, adjustable-rate mortgages declined to 5.04 percent from 5.23 percent. Rates on one-year, adjustable-rate mortgages fell to 4.80 percent from 4.94 percent last week.

The rates do not include add-on fees known as points. The nationwide fee for 30-year, fixed mortgages averaged 0.7 point for this week. The fee for 15-year mortgages averaged 0.6 point.

Fees for five-year, adjustable-rate mortgages averaged sixth-tenths of a point and 0.5 point for one-year, adjustable rate mortgages.

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