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New refinance boomlet may lift economy, a bit

Low mortgage rates act as a gentle spur, but they're not enough to revive the housing market.

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To refinance, these borrowers must either pay down their loans substantially or their lenders must agree to write down the principal, in the hopes that the new loan will be less likely to go into default.

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Neither of those things has been happening very often. The White House and Congress are considering ways to prevent new foreclosures, including some programs in which troubled loans would be refinanced as lenders agree to write down principal balances.

For now, it’s people with good credit and positive home equity who are refinancing.

Still, every bit of stimulus helps.

Mortgage applications highest in six years

The volume of mortgage applications has leapt upward since November to its highest level in six years, according to the Mortgage Bankers Association.

On Thursday, the giant lender Freddie Mac reported that 30-year fixed mortgage rates averaged 5.12 percent this week, edging up from the record low of 4.96 percent the week before.

At best, the refinancing boomlet will be a partial fix for consumers. But policymakers hope lower rates will also fuel more home purchases – thus addressing the economy’s biggest weak spot.

That’s one motive behind government actions – including Federal Reserve interest-rate cuts and moves by the Fed and the Treasury to become buyers of mortgage-related debts – that have helped bring mortgage rates down.

So far, falling rates haven’t dented the big inventory of homes for sale. Potential home buyers may be reluctant to jump into the market at a time when prices are falling. But that may change if buyers begin to feel that the market bottom may be near, or that the low rates won’t last.

“If they believe this [opportunity] is temporary, this may entice them to come in” and buy, says Rajeev Dhawan, an economist at Georgia State University in Atlanta.

If enough buyers start to come in, the psychology surrounding the housing market could shift.

“A drop in mortgage rates is part of the solution” to the economy’s troubles, says Mark Vitner, an economist at Wachovia Corp. in Charlotte, N.C. But “there’s no one silver bullet.”