An aggressive rate cut by the Federal Reserve on Tuesday did little to lower U.S. home loan costs, but the Fed's promise to expand a massive mortgage debt purchase program if needed should push rates down.
The average 30-year fixed mortgage rate was 5.30 percent late Tuesday after the Fed sliced short-term lending rates to near zero, according to HSH Associates, a mortgage information provider. The night before, the rate was 5.28 percent.
Rates should decline as the Fed's sweeping debt purchase programs kick in, housing analysts said.
Rather than the Fed's rate cut, which more directly impacts shorter borrowing costs, fixed mortgage rates would drop because "the Fed did announce some important and expanding supports for other markets and mortgage markets especially," said HSH vice president Keith Gumbinger, in Pompton Plans, New Jersey.
The government's aim in these debt purchase programs is to bolster the mortgage market, free up lenders to make new and lower-rate loans and stimulate the worst housing market since the Great Depression.
"Really there's some enthusiasm about those opportunities as we roll forward into 2009," Gumbinger said.
The Fed last month said it would buy up to $100 billion of U.S. agency notes issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks. The Fed has made two purchases totaling $8 billion over the past two Fridays.
The central bank also said it would purchase up to $500 billion of mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae. read more
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