Mortgage Rates Tumble on New Fed Plan

Washington, DC, Nov. 26, 2008--U.S. mortgage rates dropped by the most in at least seven years as a Federal Reserve pledge to buy $600 billion of debt succeeded where seven cuts in the central bank’s benchmark rate had failed.

The average rate for a 30-year fixed mortgage fell to about 5.5 percent after starting at 6.38 percent yesterday, according to Bankrate Inc. It was the biggest one-day drop in at least seven years.

“Home resales have hung up because rates are high and because mortgage money has been scarce,” said Neal Soss, chief economist at Credit Suisse Group in New York. The Fed’s move “may hasten the day when we finally find a bottom in housing.”

The central bank pledged to purchase up to $500 billion in so- called agency debt as well as up to $100 billion in direct debt of Fannie Mae and Freddie Mac, the world’s two largest mortgage buyers, and Federal Home Loan Banks. The announcement was released at 8:15 a.m. New York time yesterday.

Rates for a fixed rate mortgage with no fees or closing costs tumbled to as low as 5.25 percent from about 6.25 percent.