Mortgage rates dip for fourth straight week

WASHINGTON - Rates on 30-year mortgages sank for a fourth straight week, falling below 6 percent for the first time since early October, and are heading lower due to the government's massive new effort to aid the U.S. housing market.

Further drops are likely, analysts said, reflecting the market's positive response to the programs the Federal Reserve and the Treasury unveiled this week to fight the financial crisis.

The Fed's move to spend up to $600 billion buying mortgage-backed securities owned or guaranteed by big mortgage financing titans Freddie Mac and Fannie Mae caused rates to immediately drop by a half-point. Economists say the new Fed program should help keep rates low as the government increases efforts to battle the credit crisis.

"The sharp decline in mortgage rates that occurred after the new program was announced Tuesday was encouraging," said Mark Zandi, chief economist at Moody's Economy.com.

Freddie Mac reported Wednesday that rates on 30-year fixed-rate mortgages dropped to 5.97 percent this week. That was down from 6.04 percent last week. It was the first time rates have been below 6 percent since they were at 5.94 percent the week of Oct. 9.

Freddie Mac's survey is normally collected from Monday through Wednesday and released on Thursdays. This week, it was put out one day early due to the Thanksgiving holiday. Since some lenders reported their rates Monday, this week's rates don't reflect the full impact of the Fed's dramatic action.

Rates on the 30-year mortgage hit a high for this year of 6.63 percent in late July. Analysts believe rates will continue dropping as signs mount that the country is sliding into a recession and the government steps up efforts to make mortgage financing more available.

"Signs the overall economy is flagging lowered most interest rates market-wide," said Frank Nothaft, chief economist at Freddie Mac.

Rates on other types of mortgages were mixed this week.

For 15-year, fixed-rate mortgages, which are popular with people who are refinancing, rates averaged 5.74 percent, up slightly from 5.73 percent last week.

Rates on five-year, adjustable-rate mortgages dipped to 5.86 percent, compared with 5.87 percent last week. Rates on one-year, adjustable-rate mortgages dropped to 5.18 percent, from 5.29 percent last week.

The rates do not include add-on fees known as points. The nationwide fee for 30-year and 15-year mortgages averaged 0.7 point last week. The fee on five-year, adjustable-rate mortgages averaged 0.6 point while the fee on one-year adjustable-rate mortgages averaged 0.5 point.

A year ago, the nationwide average rate on 30-year mortgages stood at 6.10 percent, 15-year mortgage rates averaged 5.73 percent, five-year adjustable-rate mortgages were at 5.86 percent and one-year adjustable-rate mortgages stood at 5.43 percent.

The credit markets, while not as crunched as they were last week ahead of the rescue of Citigroup Inc., are still in rough shape because financial institutions and other investors remain wary about lending. Short-term Treasury rates remain just above zero — suggesting a high level of fear among investors.

"You're seeing modest, ever so modest, easing in credit conditions. But you can't declare victory when the patient on the deathbed goes to critical. It's still dire," said T.J. Marta, fixed-income analyst at RBC Capital Markets.

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AP Business Writers Madlen Read and Alan Zibel contributed to this report.

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