Mortgage rates have plunged since the Federal Reserve said it would spend $600 billion to buy mortgage-backed securities and debt issued by Fannie Mae, Freddie Mac and Ginnie Mae, but tightened underwriting standards mean many people won't be able to take advantage of them.

The Mortgage Bankers Association said applications for refinance loans shot up 203 percent on an adjusted basis for the holiday-shortened week ending Nov. 28. Applications for purchase loans were up a more modest 38 percent.

The average rate for 30-year fixed-rate mortgages decreased to 5.47 percent from 5.99 percent, and points decreased to 1.16 from 1.23 for 80 percent loan-to-value (LTV) ratio loans, the MBA said.

"Many borrowers missed an opportunity to take advantage when rates dropped sharply for a brief period when the GSEs were placed under conservatorship," said MBA forecaster Orawin Velz in a statement. "When rates plummeted following the Fed's announcement that it would buy GSE debt and MBS, many of those on the sidelines decided to quickly jump in and take advantage of lower rates before they began to rebound."

Rates on loans eligible for purchase by Fannie and Freddie have come down by nearly a full percentage point since the Fed's Nov. 25 announcement that it would provide massive liquidity to mortgage markets (see story).

Each 1 percent decrease in interest rates translates roughly into a 10 percent increase in home buyer purchasing power, which the National Association of Realtors estimates can generate 500,000 additional home sales.

After the Fed's announcement, NAR said it would continue to push for a temporary, government-financed, interest-rate buy-down program to get rates down to 4.5 percent or less, as one component of stimulus measures proposed by the industry group to stimulate home sales.

But tightened underwriting standards will disqualify many with less-than-stellar credit scores, and an estimated 12 million homeowners who owe more than their homes are worth may also find it difficult to purchase or refinance a home.

Rates for conventional, conforming loans could fall to 5 percent by the end of the year, but about half of borrowers who could benefit from lower rates will be shut out, Inside Mortgage Finance publisher Guy Cecala told the Washington Times.

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