The US Treasury, Federal Reserve, Congressional leadership as well as private industry groups that represent home builders, realtors and mortgage bankers have all stated that they would like to see interest rates on 30 year fixed rate mortgages stabilize in low 4% range in an effort to stimulate home buying, selling, and refinance activity.

The Federal Reserve allocated $500 billion to purchase fixed rate mortgage backed securities at the lower 3.5, 4.0 and 4.5 bond coupons to drive "up their price" thereby allowing mortgage rates tied to those bond coupons to be available to home owners and home buyers.  This buying program began in early January and the Fed's authorized buying representatives have purchased an average of almost $4.5 billion in mortgage backed security purchases per day.  At this pace, the Fed will burn through the $500 billion allocated for this program in early June.  

Unintended Consequences:  the usual buyers of mortgage backed securities have reduced their volume of purchases because of the artificially inflated "demand pool" created by the Fed buying program, and while the lower rate coupon prices have risen, the interest rates and the cost of those rates have not benefited consumers.  The reasons are:

1. Banks and investors holding mortgage notes at higher rates are losing tremendous amounts of money as borrowers are refinancing out of those higher rates and into lower rate mortgages.
2. Banks and investors are losing billions of dollars as foreclosures and losses from sales of foreclosed properties mount, and are taking increased profits.
3. During the slowdown of 2007 and 2008, many banks and mortgage facilities reduced their warehouse capacities to temporarily store mortgage bundles prior to securitization, reduced their staffs, etc and cannot handle the increased volume.  As a result, they have "raised" the rates and increased their profit margins on rates offered to their public in an effort to slow down incoming new mortgages.

Based on historical margins made by investors and banks, lower interest rates "should" be available to consumers, as well as the ability for lenders to offer "low" cost refinances.  However, because of the previously mentioned factors, it is not likely that rates in the low 4% range will be available to consumers without additional government spending or regulatory action.

Additionally, because of increased lending requirements, appraisal valuation restrictions, and declining market restrictions, many homeowners are not able to refinance into these lower interest mortgages.  In May, the Home Valuation Code of Conduct governing home appraisals will go into effect, which could further restrict some homeowners from refinancing due to lower home valuation.  Moreover, bank owned properties are being added to the inventory of homes for sale in Snohomish County and at fire-sale prices, which drives values of homes in those neighborhoods lower and lower with every month.  Lastly, credit card companies will be reducing the credit limits on credit cards of consumers by "trillions" of dollars over the next several months, which will have an adverse impact on many cardholders' credit scores--further making it difficult for some consumers to refinance.

Government and regulatory officials have discussed the possibility of allowing "rate and term" refinances to occur without appraisal valuation, but this would have a negative impact on the purchase of mortgage backed securities because investors will demand increased yield on their money because of the tremendous risk associated with "high" loan to value mortgages. 

Homeowners considering refinancing should act now while there still might be enough appraisable value in their home, and rates are currently in the high 4% to low 5% range.