Mortgage rates take big drop after bailout plan

For the first time in nearly eight months, mortgage brokers and lenders have good news for their clients. That’s because the federal bailout of mortgage giants Fannie Mae and Freddie Mac has resulted in a sharp and sudden drop in mortgage rates.

Sunday's announcement that the government would intervene in the troubled lending giants sent long-term mortgage rates plunging.

The average rate on a 30-year, fixed-rate mortgage had fallen to 5.88 percent, down from 6.26 percent last week, according to Bankrate. The average rate on a 15-year fixed-rate loan fell to 5.49 percent, down from 5.77 percent during the week prior. For the mortgage market, that represents a huge drop, virtually overnight.

He said the Detroit-based company logged its busiest day of the year Monday in terms of combined new loan and refinancing applications.

While interest rates on fixed-rate mortgages dipped below 6 percent in January, that drop only lasted one day. This time, lenders say, the newly lowered interest rates should last much longer. The news, they say, is good for consumers as well as for the real estate industry.

For mortgage lenders and brokers, the needle’s shift south means that phones are ringing and Blackberries are quivering with eager calls from consumers.

“When you see rates go down nearly half a point in one day, people notice,” said Joey Hansen, a mortgage broker in the Apex, N.C. “I think we’ve entered a new world. The confidence restored in world markets will last for awhile.”

For her part, Hansen believes fixed-rate mortgages will remain below 6 percent for several quarters.

Ditto for Peter Thompson, senior loan officer at Professional Mortgage Partners in Downers Grove, Ill.: He believes rates could stay below 6 percent for the rest of 2008.

“A lot of people missed out on these rates the first time,” he says, referring to brief rate drops in January. “People are just finding out about the new rates.”

But other brokers note that, while the newly lowered rates could last for a few months, they won’t stay below 6 percent forever and may climb back up to about 6.5 over the next year.

Joe Metzler, a senior mortgage broker at the Metzler Mortgage Group at St. Paul, Minn.-based Mortgages Unlimited, says that he’s seen only a slight uptick in customer contact since the news of the federal intervention broke, and what calls he’s gotten are coming mostly from clients already shopping for a mortgage but who hadn’t yet  locked in rates.

Metzler said he was burned in January when rates dropped to around 5.8 percent: He hastily organized a postcard mailing to 15,000 former and potential clients and mailed it out the day of the rate drop, but as the week wore on rates ticked back up to about 6.3 percent. By the time clients called about the low rates marketed in his mailing, he couldn’t offer them, he says.

Yesterday I was reluctant to do that again,” he says.

He thinks they are mostly at the level they are now as a "knee-jerk" response to the federal intervention, and will kick-start a market recovery before going up again.

“Rates can’t live there forever,” Metzler says. “I’d tell anyone who thinks rates below 6.5 percent are a good deal to lock them in now.