UPDATE 1-US mortgage rates top 5 percent-Freddie Mac

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By Julie Haviv

NEW YORK, April 1 (Reuters) - U.S. mortgage rates rose for a third straight week, moving above 5 percent and reaching their second highest level this year, a closely watched mortgage survey showed on Thursday.

Interest rates on U.S. 30-year fixed-rate mortgages, the most widely used loan, averaged 5.08 percent for the week ended April 1, up from the previous week's 4.99 percent, according to a survey released by Freddie Mac FRE.PFRE.N, the No. 2 U.S. mortgage finance company.

That is above the year-ago level of 4.78 percent as well as the record low of 4.71 percent in early December. Freddie Mac started the survey in 1971.

Stan Humphries, chief economist at real estate website Zillow.com, sees an upward trend in mortgage rates for the rest of this year, approaching 6 percent by the end of 2010.

"We are seeing some upward pressure on mortgage rates due both to increasing rates on U.S. Treasury notes and possible effects of the end of the Federal Reserve's intervention in the mortgage-backed security market," he said.

Mortgage rates were widely expected to rise when the Federal Reserve stopped buying mortgage-related securities at the end of March.

"Interest rates for fixed mortgages rose this week following a run up in long-term bond yields, while ARM rates eased slightly," Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement.

"Rates on 30-year fixed loans were the highest since the starting week of this year," he said.

Rising mortgage rates do not bode well for the housing market, which remains highly vulnerable to setbacks and heavily reliant on government intervention. The timing could also spell trouble as the housing market enters its most important period -- the spring selling season -- and struggles to regain its old self as data shows growth has been anything but resurgent.

Mortgage rates are linked to yields on Treasuries and yields on mortgage-backed securities.

LOW RATES, LIMITED APPEAL

The housing market remains fragile, with recent data on new and existing home sales indicating the sector has hit a lull after showing signs of a recovery late last year.

One glimmer of hope is a recent rise in demand for home purchase loans, a tentative early indicator of home sales.

The Mortgage Bankers Association said Wednesday that U.S. mortgage applications rose for the first time in three weeks as demand for home purchase loans reached the highest level since October. For details, double-click on [ID:nN31203748]

Freddie Mac said the 15-year fixed-rate mortgage averaged 4.39 percent in the latest week, up from 4.34 percent the prior week. [ID:nWAL1FE60H]

Interest rates on other types of loans fell.

One-year adjustable-rate mortgages (ARMs) were 4.05 percent in the latest week, down from 4.20 percent in the prior week. The rate on the 5/1 ARM, set at a fixed rate for five years and adjustable each following year, was 4.10 percent, compared with 4.14 percent a week earlier.

A year ago, 15-year mortgages averaged 4.52 percent, the one-year ARM 4.75 percent and the 5/1 ARM 4.92 percent. (Editing by Jeffrey Benkoe)