Plunging home mortagage rates have sparked a flood of refinancings, a rise in mortgage applications from people who are seeking to buy homes, and hopes that the whirlwind of activity might provide a boost for the Spokane-area economy.

Applications for mortgages jumped 25 percent in the week ended Dec. 10 at Golf Savings Bank, a Sterling Financial Corp. mortgage subsidiary, says Troy Sims, Golf's home-loan branch manager here. Applications for refinancings "are so high we can't even track them," he says.

On the morning of Dec. 11, Golf was offering 30-year mortgages with a fixed rate of 4.875 percent.

"We've only seen these rates one other time" in his almost 17 years in the mortgage business, Sims says. That occurred in August 2004, although he says comparable rates were available for extremely brief periods, such as for "an hour or an hour and a half," earlier this year.

Sims says mortgage rates fell sharply and activity picked up after the Federal Reserve announced Nov. 25 that in the coming months it would buy $500 billion of mortgage-backed securities issued by Fannie Mae, Freddie Mac, and Ginnie Mae, which have ties to the government, plus $100 billion in direct obligations from Fannie, Freddie, and the Federal Home Loan Banks. He says the Fed's announcement boosted confidence in mortgage-backed securities, which are sold to raise capital for mortgages.

The Fed's action appears to have worked. In the week ended Nov. 28, which included the Thanksgiving holiday, the Washington, D.C.-based Mortgage Bankers Association's composite index of national mortgage loan application volume shot up by 112 percent on a seasonally adjusted basis from the previous week, and its refinance index skyrocketed by 203 percent. The following week, the application index dipped by just 7.1 percent, and the refinance index was off by only 0.9 percent.

When Linda Wrenn, mortgage team leader at the Spokane office of HomeStreet Bank, 1330 N. Washington, came to work on the day the Fed took its action, she learned that rates for 30-year fixed-rate mortgages had plummeted to 5.25 percent from 5.75 percent the day before.

"My jaw dropped," says Wrenn, who has been in the mortgage business here since 1975 and has rarely seen a half-point drop in rates be sustained for long.

For the next four or five days, Wrenn fielded constant calls from customers.

"I lost my voice," she says. "The inquiries have shot up. Loan applications have gone up a lot."

Yet, she adds, "It's almost too volatile right now to lock anybody in."

Wrenn, who was still hoarse on Dec. 12, did manage to say that HomeStreet, which is based in Seattle and has offices in four states, was offering 30-year fixed-rate loans at 4.875 percent and 15-year fixed-rate loans at 4.75 percent.

Rich Bennion, HomeStreet's Seattle-based executive vice president, says that through Dec. 11, HomeStreet had taken in 265 loan applications in its Spokane-area and Puget Sound-area offices, up from 109 applications in the first 11 days of November.

"We're up about 140 percent," he says. "I do still have a voice, but our loan officers are pretty swamped."

The mortgage market responded as the Fed hoped it would when it announced that it would buy housing-agency securities, Bennion says.

"It was immediate and dramatic," he says. "About 70 percent of that impact was for refinances. We're beginning to see an uptick in new (purchase) applications." While many potential applicants were waiting for rates to drop so they could refinance their homes, "people don't run out and buy a home the first day" after rates drop, he says.

Sims says though, that if low rates prevail for another month to 45 days, or even better, into February, "it could be the spark that brings the real estate market back." He adds that even the construction of 20 more homes a month could improve things in the Spokane area.

"Absolutely" that's true, says Avista Corp. economist Randy Barcus, who says all of Spokane County might not get to 1,000 housing starts this year, which would be off by two-thirds from the recent peak year of 2005.

"Twenty more is roughly a 25 percent increase" on a full-year basis, Barcus says. "It would get the builders building again, because they're on their ear. This is really beneficial."

Barcus calls 30-year fixed-rate mortgages at rates in the neighborhood of 4.5 percent "one of those once-in-a-lifetime opportunities. We have only seen glimmers of fixed rates below 5 percent in the post-World War II period."

For homeowners who refinance at such rates, "It's like getting a pay raise," Barcus says. While for most people the amount of added income is only about $200 a month, "It's most certainly a benefit," he says.

Such attractive rates could get some people "out of exotic mortgages," such as interest-only mortgages, "and into fixedrate mortgages," Barcus says.

Sims says that during his career, 30-year fixed-rate mortgages more typically have been offered at rates of 6.25 percent to 6.5 percent. He says the monthly payment for a 30-year fixed-rate $200,000 loan at 4.5 percent would be $252 lower than for such a loan at 6.5 percent.

Sean Sieveke, owner of Global Home Mortgage, 802 N. Washington, says his company was offering 30-year fixed-rate loans at 4.625 percent on Dec. 11 after dropping its rates twice on Dec. 10, first to 5 percent, and then to 4.875 percent. It offered 15-year fixed-rate mortgages at 4.5 percent on Dec. 11.

"I've personally not seen a better time in the market," Sieveke says. Yet, he says, some potential applicants are hesitant to apply now because they think rates might go down further.

"These are people who were getting quoted at 6.5 percent or 7 percent a few months ago," he says. "What we're seeing are inquiries, but a lot of them don't have the credit or the income to buy a home."

On Dec. 8, an automated "rate watch alert" available on Spokane Teachers Credit Union's Web site sent alerts to 66 people, which is an unusually high number, who had asked to be notified when rates fell to a certain level, says Vicki Steen, STCU's real estate services manager.

"We have noticed a pickup in the phone calls and the inquiries from members," she says. On Dec. 11, STCU was offering 30-year fixed-rate loans at 4.75 percent, with 15-year fixed-rate loans at 4.625 percent.

It wasn't as if mortgage departments had been sleepy all year. STCU had record volume in the first half of 2008, including "a mini 'refi' boom" helped along by relatively attractive rates" before things had slowed down in the second half, Steen says. Sims says that Golf, because it has a large number of products and the recognition of being part of a regional financial institution, had "actually been having record quarter after record quarter" in the Spokane area. "We just haven't experienced the softening that the Snohomish (County) and Seattle markets have."

Sims says that continued federal underpinning of the mortgage market would provide more predictability in the rating of mortgage-backed securities and also would address fundamental questions about the supply and demand of homes raised by foreclosures and fear.

Before the Fed acted, confidence in mortgage-backed securities had been lagging, especially in China and Japan, which have the cash to buy such instruments in U.S. markets and buy many of them, Sims says.

Historically, the issuers of mortgage-backed securities paid interest rates on the instruments that were about 1 percentage point higher than the interest rate on the 10-year Treasury bill, which is sold by the government, Sims says. This year, he says, the securities have paid rates that were twice the rate paid by the 10-year Treasury bill.

The lower mortgage rates available now are no guarantee that people will be able to obtain mortgages at the best possible terms, Sims cautions. It would take a credit score of 740 and at least 20 percent down for an applicant to be approved for the lowest possible rate, he says. Otherwise, he says, "you're going to pay a slightly higher rate."

A key now is how long rates will stay down, Sims adds.

"If they only stay down for under two or three weeks, I don't think that's going to have enough impact to help us long term," he says.