UPDATE 1-US 30-yr mortgage rates hover still around 5 pct

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By Lynn Adler

NEW YORK Feb 4 (Reuters) - U.S. fixed mortgage rates eked out small increases in the past week, but the average 30-year loan held at around 5 percent, fostering affordability, home funding company Freddie Mac said on Thursday.

The long-term borrowing cost rose 0.03 percentage point to 5.01 percent in the week ended Feb. 4. That was up from a record low 4.71 percent in early December, but down from 5.25 percent a year ago.

Low mortgage rates, average home price declines of 30 percent from 2006 peaks and federal homebuyer tax credits have started stabilizing U.S. housing after a three-year plunge.

A rebound is seen coming in fits and starts, however, with a record number of foreclosed properties yet to be put up for sale by banks, and borrowers grappling with double-digit unemployment.

Pending sales of existing homes rose in December, mortgage applications increased last week to a six-week high, and residential fixed investment rose for two straight quarters in the last half of 2009, Freddie Mac chief economist Frank Nothaft said in a statement.

Even more encouraging, he said, was a Federal Reserve survey of senior loan officers showing that banks have generally stopped tightening standards on most types of loans. Fewer banks expected credit quality to deteriorate over the coming year.

See more rates from Freddie Mac FRE.N at [ID:nWAL4DE609].

Freddie Mac has forecast a 30-year mortgage rate rise to 6 percent in the fourth quarter after another key federal government support program ends.

The Federal Reserve by March 31 will end a program it started in late 2008 to buy more than $1.4 trillion in mortgage-related securities, aiming to lower home loan rates and revive housing.

The record low mortgage rates in the fourth quarter helped spur a record share of homeowners to cut their loan principal when they refinanced, saving billions of dollars, Freddie Mac said last week. [ID:nN2898787].

These savings come as many borrowers who are unemployed or underemployed struggle to make timely mortgage payments and are seeking to alter loan terms.

"The vast majority of homeowners seeking counseling and loan modifications are hard-working people who have recently lost a job or a significant portion of their income," said Michelle Jones, senior vice president for counseling at Consumer Credit Counseling Service of Greater Atlanta.

About 70 percent of homeowners seeking counseling for foreclosure prevention through the agency report a job loss or income cut. (Editing by Padraic Cassidy)