Mortgage rates fell sharply Monday, as investors reacted to the government's takeover of Fannie Mae and Freddie Mac. And that's exactly what homeowners like Jim Chereskin had been waiting for.

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WASHINGTON — Mortgage rates fell sharply Monday, as investors reacted to the government’s takeover of Fannie Mae and Freddie Mac. And that’s exactly what homeowners like Jim Chereskin had been waiting for.

The Naperville, Ill., man took out an adjustable-rate loan in 2003 and has been worrying about how much his mortgage payments will rise once the loan resets to market rates in about 18 months.

“I don’t want to have to worry about it anymore,” said Chereskin, who expects to switch to a fixed-rate loan as soon as this week. That way, he said, “I can sleep at night and I’m good.”

The takeover of the two mortgage titans that own or guarantee about half of all U.S. mortgages will help borrowers who had been nervously waiting for the best time to get out of adjustable-rate mortgages they took out during the housing boom.

But it will do little to stem the dramatic rise in foreclosures. And so far, the government’s other programs to assist distressed borrowers in refinancing have had minimal impact. And that has consumer advocates calling on Fannie and Freddie to do more.

The average interest rate for a 30-year fixed rate mortgage dropped 0.3 of a percentage point to 6.04 on Monday, according to HSH Associates, and are expected to decline a little more in the coming weeks.

Keith Shaughnessy, president of Foundation Mortgage in Littleton, Mass., said he’s advising borrowers who want to take advantage of the sudden drop by “locking in,” or accepting a lender’s interest-rate offer: “Wait if you can — they’re probably heading lower.”

By December, or at least by the start of the so-called spring selling season in April, fixed rates may near 5.5 percent, Shaughnessy said.

“I think we are at the beginning of a slow and steady decline that will end up with rates half a point lower in three to six months,” said Shaughnessy, who in January 2007 correctly predicted the subprime market collapse that began a month later.

Paul Lueken, president of 1st Advantage Mortgage in Lombard, Ill., received an influx of calls Monday from Chereskin and other consumers wondering how the government’s actions would affect mortgage rates. Lueken’s message to those borrowers: Pay attention, because rates are “starting to move in your direction.”

While it’s nothing like the refinancing boom several years ago, Monday brought a rare moment of optimism in what has been an excruciating year for mortgage lenders, mortgage brokers, real estate agents and homebuilders.

Off the fence

“It’s going to restore confidence … with a lot of homebuyers that are right now sitting on the fence,” said Jim Gillespie, chief executive of Coldwell Banker Real Estate.

The government’s actions “should make it easier for home buyers to find and qualify for a mortgage,” said Timothy Eller, chief executive of homebuilder Centex.

Mortgage bankers and brokers also are hoping the government will eliminate or reduce fees Fannie and Freddie have been charging lenders to protect against increased losses from mortgages they own or guarantee.

Still, it remains to be seen whether Fannie and Freddie — under government control — will be able to do more to prevent foreclosures.

The companies already have increased payments to loan servicers — companies that collect mortgage payments on behalf of Fannie, Freddie and other lenders — to encourage them to help more borrowers work out their loan problems and avoid foreclosure.

John Courson, chief operating officer of the Mortgage Bankers Association, said new leadership at Fannie and Freddie will provide an opportunity to review foreclosure-prevention practices. “Are there ideas that we can come up with that might be better and more effective?” he asked.

Consumer groups were already urging the government to place more pressure on Fannie and Freddie to aid borrowers in trouble.

“Since we are using tens of billions of dollars to bail out entities engaged in these lending practices, it’s time for the nation to demand those same entities fix it by restructuring loans and avoiding the further demise of the housing market,” said Bruce Marks, chief executive of the Neighborhood Assistance Corporation of America, a Boston-based group that helps troubled borrowers.

The bailout may temper the slide in home prices, Pacific Investment Management’s Bill Gross said Monday.

“It means if they were going to go down 15 percent, perhaps they will only go down about 11 or 12 percent, so we have already seen some positive moves and positive actions in terms of [Monday’s] moves and market behavior,” said Gross, manager of the world’s largest bond fund.

If the bailout is a salve to help heal what’s ailing the U.S. economy, it’s likely to be a slow-acting medicine that may not stop the infection before it gets worse.

Analysts predict the vicious cycle where housing, credit and financial problems force Americans to hunker down further — hobbling the economy and in turn aggravating those very troubles — won’t be easily broken.

“The negative psychology has become embedded and will take time to unwind,” said Brian Bethune, economist at Global Insight. “It is not instant coffee.”

Along with rising unemployment and shrinking paychecks, that means consumers probably will retrench, further weakening the economy.

A growing number of analysts believes the economy will be thrown into reverse in the final three months of this year and perhaps in the first three months of next year, meeting a classic definition of a recession.

“It would be a mistake to think there would be any immediate, or short-term, impact for economic growth,” said Bethune, who is among those analysts who expect the economy will contract in the fourth quarter of this year and the first quarter of next year.

“It will take time for the government to execute its plan and for worldwide markets to be comfortable with it,” he said.

Downward spiral

Howard Chernick, economics professor at Hunter College, predicted: “The U.S. economy will continue to spiral down.”

The economy shrank late last year and barely budged at the start of this year. Growth picked up in the spring, thanks to brisk exports and the government’s tax rebates, which energized shoppers at home. But that rebound isn’t expected to last.

“The economy will flatline,” said Stuart Hoffman, chief economist at PNC Financial Services Group.

He predicts the economy will log no growth during the fourth quarter and next year’s first quarter, rather than actually contracting. But it’s a close call, he acknowledged. “It is going to be a tough period.”

Material from Bloomberg News was used in this report