Telephones are ringing — and ringing — at mortgage brokers' offices around the country after this week's sharp drop in mortgage rates. Average rates on 30-year fixed-rate mortgages fell to 5.97%, down from 6.33% the week before, according to Bankrate.com. Some brokers report rates as low as 5.25%. Borrowers with a $200,000 loan, for example, would save about $63 a month if their interest rate dropped to 5.5% from 6%. Credit the Federal Reserve's announcement this week that it will buy $500 billion in mortgage-backed securities held by Fannie Mae and Freddie Mac, helping the two mortgage-finance giants increase the pool of money available to banks and other lenders to make new mortgages. "It is pretty remarkable stuff," says Bob Walters, the chief economist at Quicken Loans, where applications quadrupled Tuesday from Monday. "Some people might be trying to hold out for even lower rates," he says, "but in 30 or 40 years, we haven't seen them go much beneath these levels. They could, but you're betting against history."

Mortgage professionals used to 10 applications a day may have gotten 200 on Tuesday, says Brian Koss, a managing director of Mortgage Network in Danvers, Mass. "This is really craziness," Koss says. "This news broke the logjam on interest rates that allowed rates to drop significantly." Koss recommends that borrowers who find an attractive rate move fast to lock it in. "If the number works, lock it, and lock it in for 60 days. Drop everything you are doing, get the mortgage professional all of the paperwork they need, so you don't run out of time," he says.

Other mortgage professionals say they're seeing an uptick in applications, but the rates should remain low so people can apply when they're ready. "Any time you have action like that taking place in Washington," said Jim Sahnger, a mortgage broker with Palm Beach Financial Network, "it takes awhile to get to Main Street. As we're going into the holidays, people are more focused on buying turkeys than filling out a mortgage application." But the customer surge comes to an industry decimated by business failures and job losses. There are fewer people to handle loans and less money to lend. Lending standards are higher, too. "It's like someone saying, 'Hey there is free food around the corner!' You don't realize it is free food for 50 — not 500," Koss says.