by Calculated Risk on 3/18/2009 04:59:00 PM

David Greenlaw at Morgan Stanley makes an interesting point:

"The Fed’s announcement signals a clear intent to continue to drive mortgage rates lower and we expect them to meet this objective. ... In 2008, the average mortgage rate on the outstanding stock of loans was about 6.50%. So, if the Fed brings 30-yr fixed rate mortgages down to 4.50% and all homeowners are able refi, the aggregate permanent cash flow savings would be on the order of $200 billion per year."
David Greenlaw, Morgan Stanley, WSJ Real Time Economics March 18, 2009

According to the BEA, the effective mortgage interest rate in 2008 was 6.235%.

If the Fed's actions drive mortgage rates to an effective rate of 4.5% on all outstanding mortgage debt that would be about $190 billion in stimulus (on an annual basis). However not all homebuyers will be eligible for a 4.5% interest rate mortgage. But even half that stimulus would be significant.

According to Housing Wire, we are already seeing a refinancing boom: Fannie Mae Refinancing Volume Jumps

Fannie Mae’s refinancing volume jumped to more than $41 billion in February, nearly three times the refinancing volume the company experienced during the month of January and the largest refinancing volume in nearly a year, the company said Wednesday.
...
The Mortgage Bankers Association reported last week an 11.3 percent week-over-week surge in application volume –two-thirds of which were from homeowners who wanted to refinance.

Just wait - the mortgage brokers will be really busy!