Mortgage rates were at or near record lows this week following the Federal Reserve’s announcement that it will buy tens of billions in mortgage bonds every month for an indefinite period in order to reduce the cost of borrowing and stimulate the economy.

Rates on 30-year fixed-rate mortgages averaged 3.49 percent with an average 0.6 point for the week ending Sept. 20, down from 3.55 percent last week and 4.09 percent a year ago, Freddie Mac said in releasing the results of its Primary Mortgage Market Survey. That matches an all-time low in Freddie Mac records dating to 1971 last seen during the week ending July 26.

For 15-year fixed-rate mortgages, rates averaged 2.77 percent with an average 0.6 point, down from 2.85 percent last week and 3.29 percent a year ago. That’s a new low in records dating to 1991.

Rates on five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) loans averaged 2.76 percent with an average 0.6 point, up from 2.72 percent last week but down from 3.02 percent a year ago. Rates on five-year ARM loans hit a low in records dating to 2005 of 2.69 percent during the week ending July 19.

For one-year Treasury-indexed ARM loans, rates averaged 2.61 percent with an average 0.4 point, unchanged from last week but down from 2.82 percent a year ago. Rates on one-year ARM loans have never been lower in records dating to 1984.

In announcing a third round of quantitative easing, or "QE3," last week, the Federal Reserve said it would step up its purchases of mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac ("agency MBS") by $40 billion a month. That’s on top of the Fed’s existing policy of continuing to reinvest principal payments from its existing holdings of agency MBS and agency debt into agency MBS.

Those moves, along with a continuation of "Operation Twist" — the swapping of short-term Treasurys for long ones — will increase the Fed’s holdings of long-term securities by about $85 billion each month through the end of the year, and "should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative," the Fed said in announcing the decision.

The Fed’s purchases of mortgage bonds pushes their prices up, and yields down. But lower rates don’t make it easier for borrowers to qualify for mortgages in the first place, and the benefits of QE3 could be limited if new rules governing mortgage lenders proposed by regulators go into effect, the National Association of Realtors warned.

A survey by the Mortgage Bankers Association showed demand for purchase loans increased last week by a seasonally adjusted 8 percent from the week before, and was up 7 percent from a year ago.

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