U.S. 30-year mortgage rates slide toward record lows

NEW YORK (Reuters) - U.S. 30-year fixed home loan rates on Wednesday slid by as much as 3/8 percentage point to about 5 percent, nearing record lows, after the Federal Reserve more than doubled its planned purchases of mortgage-related securities.

The Fed announced "a shopping spree that would make Donald Trump blush," said Bob Walters, chief economist at Quicken Loans in Livonia, Michigan, which already cut the mortgage rates it offers by 1/4 to 3/8 point.

The Fed, as part of its ongoing efforts to cut loan rates to stimulate borrowing and revive the worst housing market since the Great Depression, said it would buy long-term Treasuries as well as more mortgage securities.

An added $750 billion would bring the Fed's total buying of Fannie Mae, Freddie Mac and Ginnie Mae mortgage bonds as high as $1.25 trillion this year.

The Fed will also double its potential note purchases from Fannie, Freddie and the Federal Home Loan Bank System to up to $200 billion and absorb as much as $300 billion in Treasuries.

All related markets rallied sharply as a result on Wednesday, leading many lenders to reduce mortgage rates or expect to reduce them this week.

The Fed's actions state "we will not walk away from supporting this marketplace," said Keith Gumbinger, vice president of HSH Associates, a mortgage information publisher in Pompton Plains, New Jersey.

"This means that there is going to be a buyer for mortgages at these levels for the foreseeable future," Gumbinger said. "That serves to enforce to the consumer that not only are interest rates low, but they are going to remain low and be stable" through the year.

The total targeted mortgage bond purchases will "obviously dwarf" net issuance this year, according to JPMorgan. The firm estimates up to $480 billion of issuance, assuming a mortgage rate of 4-1/2 percent to 5 percent.

Mortgage rates had fallen as low as 4-3/4 percent in late November, after the Fed first announced intentions to buy up to $600 billion in mortgage-related debt. Earlier in November, the rate had risen above 6 percent.

Both the Mortgage Bankers Association and Fannie Mae on Wednesday reported spikes in home refinancing as rates have fallen.

MORTGAGE RATES TO STAY LOW

"This is stepping up in a very big way," Greg McBride, senior financial analyst at Bankrate, said of the Fed's expanded buying programs.

"This assures an environment of low mortgage rates that will persist throughout 2009," McBride said.

"In the past, when mortgage rates dropped very sharply, they tended to rebound just as sharply. If you blinked you missed it, and that's unlikely to be the case in this instance" because of the ongoing Fed presence, he added.

Home purchases have been lagging refinancing even as rates and falling prices make ownership more affordable.

While homeowners are often compelled to cut current costs, worries about job loss or hopes that prices will slump more keep many potential buyers at bay.

"People who say 'I'm going to wait until rates get to 4 percent,' I think probably are going to be disappointed," Walters said.

The mortgage market is already overwhelmed with business, especially after consolidation and layoffs slashed staffing levels, he said. In the past, lenders have kept rates higher than they otherwise would just to slow the frantic pace.

Still, that doesn't mean mortgage rates won't get to the lowest levels in the "modern era," Walters said. "They're going to be, and they are."

(Editing by Jan Paschal)