The Fed's decision to cut rates before its scheduled Jan. 29 to Jan. 30 meeting indicates it believes "things are worse than what they've been saying publicly," according to Doug Duncan, chief economist of the Mortgage Bankers Association.

By cutting sooner rather than later, the Fed is hoping that acting more aggressively will help it "get ahead of the curve" and head off a recession, Duncan says.

Bob Walters, chief economist at Quicken loans, agrees.

"We're down quite a bit in the stock market," he says. "What the Fed doesn't want to have happen is for a panic to set in. They're stepping in and trying to stand strong and send some calm through the markets."

Ironically, a sinking economy may actually be good for those hoping for lower mortgage rates. Indeed, declining housing prices and sinking mortgage rates have actually made housing more affordable for many people -- as long as they have good credit, according to Duncan.

"If you're a good-quality borrower, have a high FICO ... mortgage interest rates are very good," Duncan says. "And there's lots of credit available."

Walters says it's a double bonus for homebuyers.

"Anybody who is looking to purchase a home right now is finding that they have the best of both worlds," Walters says. "They can have the steal of the century as far as what they pay for the house and also, they can finance it at decade-lows of interest rates."

However, not everybody will be able to take advantage of such opportunities. Tightening lending standards means people with past credit blemishes are finding it increasingly difficult to buy a home or refinance. 

"If you are a subprime borrower or haven't managed credit well, you probably won't be able to get a mortgage," Duncan says. "Or, you may be able to get a mortgage but it might be more expensive."

Mortgage rates are declining because pessimism is growing about the direction of the overall U.S. economy, Duncan says.

"When (economic) weakness is expected, long-term interest rates fall," he says. "Certainly, the 10-year Treasury has been down under 4 (percent) for a while. And mortgage rates, which are always a spread off of that, have come down as a result."

Duncan anticipates mortgage rates will slide further as the economy continues to erode.

"I put the risks of recession at something approaching 50-50 at this point," he says.

Walters says the recent downturn in the economy is "worse than anybody could have imagined." He cites the magnitude of write-downs at financial companies, a plunging stock market, sinking home sales and subprime mortgage woes. 

"It's just a cascade of negative information unlike we've seen in a very long time," Walters says. "Basically, the market is saying we're going into a pretty nasty period."

As widespread fears of a recession cause mortgage rates to shrink, opportunities to buy and refinance grow. In particular, both Duncan and Walters have noticed a sharp pickup in refinance activity.

Duncan says the MBA has witnessed a "big jump" in its weekly refinance application index while Walters characterizes refinance activity in recent weeks as being "through the roof."

Refinancing is especially attractive to people with adjustable-rate mortgages who do not plan to sell their homes anytime soon. By refinancing to a fixed-rate mortgage, such homeowners can fix their payment and "lock out the upside rate risk," Duncan says.

Walters agrees.

"Anybody who's over 6 percent should be talking to their mortgage banker," he says. "That's just a given."

However, refinancing may not be for everybody. For example, people with adjustable-rate mortgages who plan to sell their homes soon may want to simply wait for their mortgage rates to move lower at the next scheduled adjustment, Duncan says.

"If you're only going to be in the house for another 18 months, you have to calculate what would be the payback to doing a refinance," he says. "How much money would you pay out upfront? And how much lower would your monthly payment be for that 18 months?"

In addition, not all mortgage rates are sliding as dramatically as others. For example, rates on very large mortgages -- also known as "jumbo" mortgages -- are not as attractive for a typical 30-year fixed, Duncan says.

"If you're in the jumbo category, the spreads in the jumbo space are much wider," Duncan says. "They're not as affordable."

While falling mortgage rates offer a great savings opportunity, some people haven't yet gotten the message. Months of media reports about the nation's credit crisis have created a false impression that loans are impossible to come by, Duncan says.

"One of the myths floating around among consumers is that you can't get a mortgage today," Duncan says. "That's absolutely not true."

People who do have trouble securing a mortgage -- because of credit problems or other issues -- shouldn't give up hope of finding a lender offering a solution that works for them, Walters says.

"A lot of people talk themselves out of this and say, 'This is not going to work for me,'" Walters says. "That's not true. There are a lot of mortgage lenders that have ways to help people. So it's not a guarantee, but it's certainly worth a try."

Take away
Low interest rates and sinking home prices are creating opportunities for people shopping for a home or looking to refinance -- especially if they have good credit. However, tightening lending standards are making it increasingly difficult for people to borrow if they have bad credit.

Bankrate's rate tables can help you compare mortgage rates in your area. Bankrate can also help you calculate whether a fixed-rate or adjustable-rate mortgage is better for you.

To determine whether refinancing is right for you, use Bankrate's mortgage calculator.