Record low US mortgage rates toss housing market a lifeline

By Lynn Adler

NEW YORK, Dec 19 (Reuters) - With the $500 of monthly savings Jim Hennessy just gained by cutting the rate on his $417,000 mortgage in San Diego, he plans on rebuilding his beaten-up retirement savings and maybe even taking a cruise.

This is the outcome the U.S. government was driving at when it said it would pump hundreds of billions of dollars into buying mortgage bonds, freeing up lenders to make new loans and lower-rate refinancings that spur consumer spending and the economy.

"Maybe there's a vacation in our future, maybe a cruise because those rates have come down so much," said Hennessy, San Diego-based managing director of Miami-based marketing firm Strategic Vantage.

The worst housing slump since the Great Depression has crippled the U.S. economy and top international banks and has tipped the world's biggest economies into recession.

In addition to paying college tuition for his children, "we'll probably put more into savings and try to have some semblance of a retirement," he said after refinancing about 11 days ago at a 5-1/2 percent 30-year loan rate.

Hennessy is just one example of borrowers aiming to cut home loan payments or buy a home now that U.S. 30-year fixed mortgage rates are their lowest in a generation.

The average 30-year U.S. mortgage fell over 1/4 point in the week ended Dec. 18 to 5.19 percent, the lowest since Freddie Mac started its weekly survey 37 years ago.

It was the seventh straight weekly decline and brought rates down from about 6-1/2 percent in October this year.

The decline was also the result of the Federal Reserve cutting its benchmark federal funds rate target to a record low this week.

"Being baby boomers, we're looking down the road at retirement, and are making every effort to be as debt free as possible," Hennessy said.

Deep stock market losses and two years of home price declines have torn away wealth for many who may be able to restore some of it at these reduced borrowing costs.

Rodney Anderson, managing partner of Rodney Anderson Lending Services, a unit of Supreme Lending, in Plano, Texas, said mortgage applications are starting to flood in.

"We're seeing preapprovals in the amount comparable to 2003, and July 2003 was my biggest month ever in mortgage history," he said. "I closed 287 loans that month and we're already seeing closings occurring in December and our January pipelines are just starting to launch up."

Swapping high rate home loans for more affordable mortgages is driving most of the demand, but purchases are starting to revive, he said.

"With current low gas prices and the amount of money people save on refinancing, this is an opportunity for the economy to start making moves in the right direction," Anderson said.