EXCLUSIVE-Higher rates taking toll on home loan demand: GMAC

NEW YORK (Reuters) - Higher interest rates are exacting a severe toll on home loan demand and U.S. housing prices are not near a bottom, according to the chief executive of one of the country's largest lenders.

Tom Marano, chief executive of mortgage operations at GMAC, in an exclusive interview with Reuters on Tuesday, said home loan volume at GMAC is about 75 percent lower now than when mortgage rates hit record lows several months ago.

"Up until the past week and a half, the Federal Reserve had been successful at bringing interest rates on mortgages down," he said.

The U.S. housing market is in the midst of its worst downturn since the Great Depression, with home prices falling since hitting a peak in the second quarter of 2006.

There have been some signs that the housing market is stabilizing. The National Association of Realtors on Tuesday reported that pending home sales, based on new sales contracts, spiked 6.7 percent in April, the biggest jump since October 2001.

When mortgage rates hit a low, about two months ago, GMAC -- the auto and mortgage lender that has received billions in government bailout money -- registered about $750 million to $1 billion mortgage rate-locks a day. The interest rate on 30-year fixed-rate mortgages was around 4.60 percent during this time, Marano said.

On May 21, when mortgage rates were around 4.80 percent, volume had dropped to about $500 million a day. By Monday, mortgage rates were at 5.15 percent, and originations dwindled to $215 million, he said.

"The Federal Reserve probably needs to pick up the pace of its purchases at this point," he said, of what is needed to keep rates low.

"If mortgage rates do not go back down, home prices will need to go lower to lure buyers," he said.

The Federal Reserve is in the midst of purchasing $300 billion in Treasuries and $1.25 trillion in mortgage-backed securities in order to unclog credit markets and to keep interest rates lower.

Thirty-year mortgage rates had mostly been on a downward trend since the Fed unveiled its plan to buy mortgage-backed debt in late November. But the Fed has met resistance in the bond market.

Treasury yields, which are linked to mortgage rates, have risen sharply in recent weeks, and mortgage rates have responded in kind.

Housing has become more affordable in most markets as prices have declined sharply. Buyers have good reason to house-hunt, particularly with the federal government's $8,000 first-time home buyer tax incentive, authorized as part of the stimulus package passed earlier this year by Congress.

But the rise in the household unemployment rate to 8.9 percent, the highest in more than 25 years, has hurt economic activity. Now that rates are rising, improvement in demand is seen as more perilous.

Economists contend the economy might not emerge from its severe slump unless the housing market stabilizes.

"If I were to equate the housing market recovery to a baseball game, I would say we are in the sixth inning and we are not completely out of the woods yet," Marano said.

"The ninth inning would be defined when we see several quarters of home price appreciation in some of the key markets," he said. "I do not think we will see significant home price appreciation until at least 2011."

The expiration in March of a temporary foreclosure freeze by major banks and Fannie Mae and Freddie Mac is seen contributing to pressures on housing prices.

These bank repossessions picked up in earnest in May, and over the next six months the market will probably see over 500,000 more foreclosures completed, Marano said.

Rising foreclosures contribute to the glut of homes on the market, driving down prices.

"It is the rat that is in the belly of the snake and that rat is making its way through the pipeline," Marano said.

(Editing by Leslie Adler)