Lower US mortgage rates offer hope to Main Street

By Andrea Hopkins

CINCINNATI, Nov 26 (Reuters) - For Cincinnati mortgage broker Greg Humphrey, the Federal Reserve's move to help homebuyers on Tuesday came just in time to save one client a pile of money -- and he hopes it will be a lifeline for others.

"We were thrilled to death," said Humphrey, describing the reaction he shared with colleagues at McKinley Mortgage as they watched interest rates drop after the Fed took yet another step to help Americans get the loans they need to live.

"These are the best rates we've had all year," Humphrey said. "I was actually able to renegotiate rates for a couple of my customers, one was closing (his home purchase) today, and he was thrilled ... it saved that gentleman about $70 a month."

Mortgage rates started falling within hours of a Fed announcement that it would buy debt and mortgage securities backed by Fannie Mae and Freddie Mac, the government-sponsored enterprises at the center of the U.S. housing crisis.

While countless other government moves to rescue the U.S. financial sector have failed to trickle down to ordinary Americans who need loans, the Fed's move on Tuesday pushed rates on home loans from 6 percent to below 5.5 percent.

Borrowers with a $175,392 loan -- the average size of a U.S. mortgage in September -- would save about $56 a month if their interest rate dropped to 5.5 percent from 6 percent. The drop also means more Americans with acceptable credit ratings will qualify for loans that were out of reach days ago.

"The parameters for credit are still tight but any time you can get a lower rate it makes it easier," said Humphrey, who has been a broker for five years. "A lower rate lowers the monthly payment and there will be more people who can qualify based on that lower debt-to-income ratio."

Frozen credit and the inability of homebuyers to qualify for loans or refinance into cheaper rates has been at the heart of the U.S. housing crisis, leaving a glut of foreclosed or unsold homes and pushing home prices ever lower.

But on Tuesday, the Fed said it would buy up to $100 billion of debt issued by Fannie, Freddie and the Federal Home Loan Banks, and purchase up to $500 billion of mortgage securities backed by the government-sponsored enterprises.

Stressed mortgage markets showed immediate relief, as average rates on 30-year fixed home loans fell to 5.97 percent, down from 6.33 percent a week ago, according to Bankrate Inc.

FRIENDLIER MORTGAGE 'NEIGHBORHOOD'

Quicken Loans, an online mortgage lender, said mortgage applications jumped 292 percent on Tuesday from a day earlier.

Long-term mortgage rates are expected to go lower even lower in the days and weeks ahead.

"Instead of mortgage rates in the 6-1/2 percent neighborhood as they've been in the past couple of months, 5-1/2 percent becomes the new neighborhood," said Greg McBride, senior financial analyst at Bankrate in North Palm Beach, Florida.

The cheaper loans come too late to help millions of homeowners already in foreclosure or those who do not have good enough credit to qualify for the lower rates.

"This action did not put into place new programs for people who are struggling to make their payments or who are directly facing foreclosure," said Jill Hoogendyk, the president elect of the Arizona Mortgage Lenders Association.

"But what it is going to do is bring interest rates down ... (and lower rates) make buyers start to feel like this is a great time to buy. So obviously it is our hope that it is going to increase activity," she said.

Allen Kingsley, president of the Dallas Association of Mortgage Brokers, said the government needs to do more to help people who are not in immediate danger of foreclosure but who need lower mortgage payments.

"I get phone calls on an almost daily basis from people who say they cannot afford to make their payments but have not fallen behind and they are getting zero help," Kingsley said.

Lenders also fear that ordinary Americans may have given up on promises by the government to ease the credit crisis and may not know some improvement is finally being seen. Even the professionals are a bit skeptical help is on the way.

"We have had other things happen that in theory anyway should have jolted the heart back and everything would have been OK and it didn't work that way," Hoogendyk said.

But Cincinnati's Humphrey thinks the housing market may have finally turned a corner.

"We still need to lower rates more ... but the trend is going in the right direction," he said. "I think it will get better. I'm hopeful." (Additional reporting by Tim Gaynor in Phoenix, Ed Stoddard in Dallas and Lynn Adler and Julie Haviv in New York; Editing by Bill Trott)