15-year mortgage rate falls to 3.29%

This post comes from Marilyn Lewis at MSN Money.

The average rate for popular 15-year home mortgages fell this week to a record 3.29%, Freddie Mac announced in its weekly Primary Mortgage Market Survey. The drop comes as the Federal Reserve made a move that is expected to keep mortgage rates extremely low for the foreseeable future.

The 15-year rate dropped from 3.30% last week. Buyers paid an average 0.6 point to get it. At this time last year, 15-year mortgages averaged 3.82%, which seemed remarkably low at the time.

Fifteen-year mortgages are experiencing new popularity, especially among older refinancers intent on paying off their mortgages before retirement, writes SiliconValley.com:

The 30-year fixed-rate mortgage has been a stalwart of today's real-estate market for homeowners looking to refinance. Now it's facing competition from the 15-year fixed-rate mortgage.

These mortgage rates have broken all records. This week, 30-year mortgages averaged 4.09%, with 0.7 point, unchanged from last week. This time a year ago, the rate was 4.37%.

The 30-year rate now is the lowest since the government starting keeping track. Post continues after video.

Freddie Mac's records for 30-year mortgages show rates first dipping below 5% in April 2009. They hovered in the low 5%-to-mid-4% range until August this year, and then the 30-year rate fell to 4.27%, with a 0.7% point, and dropped to the current record low last week.

Fed move helps rates

The Federal Open Market Committee made its move on Wednesday.

"The Federal Reserve Board will buy $400 billion in long-term Treasury securities by June 30," reports USA Today. It will sell other, short-term securities to make the purchase. The action is expected to keep the key fed funds rate at "between 0% and 0.25%, probably through June 2013."

The Fed acted despite a rare letter of condemnation from four GOP congressional leaders -- House Speaker John Boehner, R-Ohio; House Majority Leader Eric Cantor, R-Va.; Senate Minority Leader Mitch McConnell, R-Ky.; and Sen. Jon Kyl, R-Ariz.

In addition to long-term Treasury notes and bonds, "the Fed will also buy mortgage-backed securities to keep mortgage rates low," USA Today says, adding:

The Fed's moves will presumably lower mortgage rates further. The current 30-year fixed-rate mortgage rate is 4.09%, the lowest since mortgage giant Freddie Mac began tracking them .... "That's good if you're among those who can refinance," says Ryan Brecht, senior economist at Action Economics.

After the Fed's explanation of the need -- a "barely growing economy: high unemployment, depressed housing, low household spending" -- the Dow "fell 284 points, or 2.5%, to 11,125," says USA Today.

Homeowners credit is squeezed

Despite the low rates, credit is so difficult to obtain that many homeowners can't take advantage of the low rates to refinance or buy.

The average FICO score for a conventional mortgage loan now "routinely" exceeds 750, mortgage bond pioneer Lewis Ranieri said in a speech to industry executives this week, according to The Wall Street Journal. (Estimate your credit score for free.)

Ranieri criticized Frannie Mae and Freddie Mac, the giant government-run mortgage corporations, for being overly conservative in lending to homeowners. "Many qualified borrowers are being denied loans," he said.

Plenty of potential customers don't even apply, mortgage broker Chris Shedd told The Boston Globe:

Shedd said other customers aren't even trying to refinance. They've been rejected enough times to know they can't get the rock-bottom rates being promoted by lenders ....

"I can't blame them," said Shedd, president of Mortgage Resources Inc. "They don't like to be told no, no, no."

The Globe continues:

… lenders shy away from doing business with anyone whose situation even hints at risk. The result is those who might benefit most from refinancing are being shut out of the best rates, most often because their property values have eroded or their income has dropped.

"There is something cynical about lowering interest rates and then making sure that the people who really need access to credit the most can't get it," Glenn Kelman, chief executive of Seattle online brokerage Redfin, told the Globe.

The credit squeeze has had a huge effect on the economy.

"Numerous estimates currently place residential lending down more than 60% from its peak, commercial lending down by one-half and new housing starts off nearly 75%, resulting directly in more than 500,000 domestic jobs lost and indirect positional losses of 3 (million) to 5 million," residential finance consultant Mark Dangelo writes this week in MBA NewsLink, an industry publication.

More on MSN Money:

• Today's lowest mortgage rates
• Uncle Sam stuck with 248,000 homes
• Calculator:Should I refinance?
• Buy a home without a down payment
• How much house can you afford?
• Is seller financing right for you?