AS RATES DROP

Borrowers rush to refinance loans

The Fed’s cut of the federal funds rate to a range of zero to 0.25 percent has led to the lowest mortgage rates since early 1960s

AP

WASHINGTON. Homeowners around the US are scrambling to refinance their mortgages at the lowest rates since the early 1960s as the economy staggers through what's likely to be the worst recession in decades.

Mortgage brokers are already reporting a surge of calls from borrowers trying to take advantage of the Federal Reserve's extraordinary actions this week.

Meanwhile, President-elect Barack Obama is laying the groundwork for a giant economic stimulus package, worth possibly $850 billion over two years, which Democratic congressional leaders say could be passed within two weeks of Obama taking office.

The central bank, aiming to free up lending and jolt the economy back to life, on Tuesday cut the federal funds rate from 1 percent to a target range of zero to 0.25 percent and pledged to keep funneling money into the market for mortgage investments.

On Wednesday, some mortgage brokers were quoting mortgage rates of close to 4.5 percent for people with strong credit and hefty down payments.

"This is beautiful, oh my gosh!" said Patti Mazzara, a mortgage broker in the Minneapolis suburb of Edina, who was surprised when she looked up rates and found them well below 5 percent, down at least three-quarters of a percentage point from earlier in the week.

"This is a whole new game now. Hopefully it's going to give people some relief."

The national average rate on 30-year, fixed mortgages was 5.06 percent on Wednesday, according to financial publisher HSH Associates — the lowest since the 1960s and down from 5.3 percent Tuesday.

It was the best news in months for anyone looking to lock in a 30-year, fixed-rate mortgage. But it was not expected to be a cure-all, and borrowers already in danger of foreclosure probably won't be able to take advantage.

"It's a call to action for homeowners looking to get out of adjustable-rate mortgages," said Greg McBride, senior financial analyst at Bankrate.com. "Unfortunately, it's not an equal-opportunity party."

Falling interest rates mean Americans could suddenly find billions of extra dollars in their pockets at a time when consumers have sharply cut back on spending amid rising unemployment and declining household wealth.

But many experts believe that the interest rate cuts alone won't be enough to jump-start the economy.

"It's a tall order to get (people) to go out and spend again," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank. "That's why you also need a stimulus."

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