Mortgage Rates Drop Fast After Fed Stimulus Decision

Homebuyers caught off guard by interest rates that spiked in the past few months could catch a break from the Federal Reserve’s decision Wednesday to continue its massive bond-buying effort.

Within hours after the announcement, rates for 30-year-fixed mortgages dropped by about a quarter of a percentage point, local mortgage experts said. It was one of the biggest one-day drops in memory.

“We’ve seen crazier days than today, but that kind of improvement is a good day,” said Dan Starelli, senior vice president and regional manager for home lending at Umpqua Bank in Roseville.

The plummet came after a steady rise in mortgage rates that Starelli said was among the fastest increases in years.

Rates for 30-year-fixed mortgages went from near-historic lows below 3.5 percent in May to more than 4.5 percent last week, according to mortgage giant Freddie Mac. Those rates were with buyers paying nearly 1 percent of the loan amount in points and fees; zero-point loans had higher interest rates.

The jump was driven by fears that the Fed would taper its $85 billion-a-month program to buy government and mortgage bonds, which had driven home-loan rates to record lows and given a big boost to the housing market.