With mortgage rates at record lows, there has never been a better time to refinance your mortgage.

But with unemployment high, home prices low and lending standards back to more prudent levels, large numbers of homeowners can't qualify for a new loan and are locked in to their existing ones.

This is also thwarting the Federal Reserve's efforts to stimulate the economy by driving mortgage rates down.

Normally when rates tumble, millions of Americans refinance their mortgages, which frees up cash they can tote over to Walmart, Best Buy or the nearest Toyota dealership.

Although refinance applications have risen in recent weeks as mortgage rates have hit consecutive lows, they are not spiking as high as they did in previous refi booms in 2009 and in 2003, according to data from the Mortgage Bankers Association.

One reason is because mortgage rates have been nearly this low for almost 20 months and any borrower who could refinance probably did so during that period. For many, rates haven't come down enough to justify the cost of another refi.

But the bigger reason is that many homeowners who qualified for home loans a few years ago can't get a refi because their incomes have fallen, their FICO scores aren't up to snuff or their home equity has evaporated.

Freddie Mac reported last week that the average rate on a 30-year fixed rate mortgage below $417,000 fell to 4.36 percent with an average 0.7 point. That was down from 4.42 percent the previous week. That's the lowest since Freddie Mac began tracking rates in 1971. Rates are about one-eighth of a point higher on loans between $417,000 and $729,500.

To get those favorable rates, a borrower today must have a FICO score of 720 or higher, a loan-to-value ratio of 80 percent or less and at least two years of fully documented income. A few years ago, a borrower with a high enough credit score could get favorable rates with no income documentation and higher loan-to-value ratios.

In a report last month, Morgan Stanley economist David Greenlaw estimated that about half of the outstanding principal value of mortgages backed by Fannie Mae, Freddie Mac or Ginnie Mae can't be refinanced because of a low FICO score, job loss or loan-to-value ratio above 80 percent.

Greenlaw says the government could inject a significant stimulus into the economy if these agencies simply refinanced any loan they already back, regardless of the borrower's credit score, income or equity position. This is a "potential costless windfall that is not being used," Greenlaw wrote. "There is no need for a case-by-case analysis of a borrower's credit quality when the principal value of the mortgage is already backed by the government."

Other economists, including bond guru Bill Gross of Pacific Investment Management, have supported this idea, although some say borrowers should be current on their payments to qualify for an automatic or streamlined refi.

Although the idea would be a boon for borrowers, the losers would be the owners of the mortgages that get refinanced. They would be repaid sooner and be left with cash to invest, probably at lower rates.

"I don't think anyone is taking that seriously," says Michael Fratantoni, vice president of research and economics with the Mortgage Bankers Association. "Anybody who owns mortgages does not think it's a good idea. It's taking money out of their pockets and putting it in someone else's."

The Federal Reserve and U.S. pension funds are among the owners of these mortgages.

Officials in the Obama administration have denied plans for any large-scale change in refinancing policy.

For now, homeowners who can't refinance because their equity is too low should investigate the government's Home Affordable Refinance Program. Under the program, homeowners whose mortgage is backed by Fannie or Freddie and who are current on their payments may be able to refinance a first mortgage that is up to 125 percent of the home's value.

For details, go to makinghomeaffordable.gov/refinance_eligibility.html.

Borrowers who can refinance the usual way should see if it's worth it.

Sandra Bragar, a principal with wealth management firm Aspiriant, says refinancing has become "a very popular activity" with her firm's clients.

If their current balance is higher than $729,500, some can save money by taking out a conventional 30-year fixed rate mortgage for $729,500. They cover the balance with a floating-rate home equity line of credit, and then try to pay off the home equity line as quickly as possible.

In the near term, this is usually cheaper than what they are paying on their current loan, she says. Rates on mortgages above $729,500 are about 1 percentage point higher than rates on mortgages below that amount.

Bragar says borrowers should find out if they have a prepayment penalty before refinancing.