Swamped lenders hold steady

Brokers strained as mortgage rates move below 5%

Think mortgage rates are low now? They could be even lower, but mortgage lenders are already so overwhelmed with business that they are reluctant to cut rates again because they would not be able to handle additional customers.

Rates for 30-year mortgages dropped below 5 percent yesterday, in some cases well below, after the Federal Reserve this week unveiled another effort to revive the nation's flailing housing market by purchasing an additional $750 billion of mortgage-related securities to drive down rates. Some brokers were quoting rates of 4.75 percent yesterday, with average rates leveling at 4.94 percent, said mortgage tracker HSH Associates.

A few lenders were going even lower, to 4.5 percent, but it usually costs several percentage points of the borrowed amount to get such a rate.

But the Fed action could be producing even lower rates. Mortgages are set based on action in the bond market, where the Fed effort has sent yields on notes such as US Treasuries or mortgage bonds plunging. Typically mortgage rates fall a corresponding amount, but they did not this time.

Frank Nothaft, chief economist of mortgage giant Freddie Mac, said home loan rates may decline more gradually than bond yields because lenders may be too busy doing so many refinancings already.

"They are not as quick to lower interest rates because they've already got their plates full," said Nothaft.

One more explanation for the situation is that following the credit collapse last year, many mortgage brokers and lenders cut staff substantially, and so weren't equipped to handle a resurgence of business.

"If you are overcapacity and you can't breathe, you raise prices to slow down the volume. That is what a whole lot of lenders are doing now," said Barry Habib, chief executive of New Jersey-based information service the Mortgage Market Guide. "Until capacity eases, we are not going to see those lower rates get passed on to the consumer."

Rates were already pretty good. In its weekly survey, Freddie Mac reported yesterday that the US average for 30-year, fixed-rate mortgages dropped to 4.98 percent, based on quotes offered Monday through Wednesday. This nears the agency's record low of 4.96 in January.

Keith Gumbinger, vice president of HSH Associates, said the Fed's additional purchase plan signals that low rates will be around for a while.

"They reaffirmed their commitment to the marketplace that low and stable mortgage rates would continue to exist for the foreseeable future," he said. "Mortgage rates are coming down." But Gumbinger added that because of tight market conditions, "We don't expect them to fall much more than a quarter percentage point."

Local mortgage brokers reported a spike in calls yesterday.

"The phones were definitely ringing," said Amy Slotnick, a mortgage planner for Fairway Independent Mortgage in Needham. "There were a lot of people floating who wanted below 5 percent. Today those people were able to lock in."

Condominium owners and buyers, however, should expect to pay slightly more. Those who have less than a 25 percent down payment or equity in the property, Slotnick said, will pay as much as a half-percentage point higher for their loans.

And jumbo loans still remain more expensive. These are loans above a certain threshold, now $523,750 in the Boston area, and are more common here because of the higher cost of housing in Massachusetts. Rates for those loans continue to be up in the high 6 percent range.

Congress has created an in-between category, so-called conforming jumbo mortgages, which for the Boston area are those between $417,000 and $523,750. But because of recent changes in those limits, lenders have are not yet prepared to process such loans.

Meanwhile, the lower conventional rates do seem to be helping the real estate market with new sales. "We are seeing a lot more purchase money coming into the marketplace," said Drew Grandi, co-owner of Dynamic Capital Mortgage Inc. in Brookline.

Jenifer McKim can be reached at jmckim@globe.com.