US mortgage applications rise as interest rates drop

By Julie Haviv

NEW YORK (Reuters) - U.S. mortgage applications rose last week, recovering from an almost 8-year low, as potential borrowers took advantage of a sharp drop in interest rates, an industry group said on Thursday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications USMGM=ECI, which includes both purchase and refinance loans, for the week ended Nov. 7 increased 11.9 percent to 425.0, up from the previous week when the reading hit its lowest since December 2000.

The increase in home loan demand indicates some sign of stabilization, according to Torsten Slok, senior economist at Deutsche Bank in New York.

"But, clearly given the global financial and credit situation, we are not out of the woods yet and we still need to have more support for the housing market," he said.

"Any government support for the housing market is warmly welcomed," he said.

U.S. housing finance giants Fannie Mae (FNM.P) and Freddie Mac (FRE.P), this week were called upon to stage a plan to rescue homeowners. Federal Housing Finance Agency Director James Lockhart unveiled an initiative that would see the two companies lead a plan to help borrowers, namely by adjusting the interest rates on mortgages.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.24 percent, down 0.23 percentage point from the previous week. It was the largest drop since the week ended Sept. 12 when it fell by 0.24 percentage point to 5.82 percent.

Interest rates are below the peak of 6.59 percent reached during the summer, but above the 2008 low of 5.49 percent in January, according to the trade group.

Interest rates were below year-ago levels of 6.19 percent.

Treasury yields, which are linked to mortgage rates, have fluctuated sharply in recent months, causing home loan demand to shift sharply on a weekly basis.

The MBA's seasonally adjusted purchase index USMGPI=ECI rose 9.0 percent to 284.4. The index came in well below its year-ago level of 432.6, a drop of 34.3 percent.

Overall mortgage applications last week were 39.9 percent below their year-ago level. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was down 3.7 percent.

WEEKLY REFINANCING ACTIVITY JUMPS

The group's seasonally adjusted index of refinancing applications USMGR=ECI jumped 16.1 percent to 1,248.4, but was down 46.1 percent from its year-ago level of 2,315.7.

The refinance share of applications increased to 45.1 percent from 42.9 percent the previous week.