U.S. mortgage rates fall from recent high: Freddie Mac

By Julie Haviv

NEW YORK (Reuters) -U.S. mortgage rates dropped in the latest week, retreating sharply from a seven-month high as fears over inflation abated and Treasury yields dropped.

Interest rates on U.S. 30-year fixed-rate mortgages plunged to 5.38 percent for the week ending June 18, according to a survey released on Thursday by home funding company Freddie Mac.

That was down from the previous week's 5.59 percent, which was the highest level since the week of November 26, 2008.

Seven weeks earlier, the 30-year fixed-rate mortgage equaled the record low of 4.78 percent that was set the week ending April 2, which was the lowest since Freddie Mac started the Primary Mortgage Market Survey in 1971.

Bob Walters, chief economist at Quicken Loans, an online mortgage lender in Livonia, Michigan, said for the last several months, activity has been driven by historically low rates.

"Last week signaled an abrupt departure from the low rates we have seen since November, spooking many consumers," he said.

The drop in rates this week should help many consumers breathe a little easier, he said.

The U.S. government has embarked on an aggressive plan to bring mortgage rates down to levels that will spur demand and help the hard-hit housing market begin to recover.

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.

The Federal Reserve has set a goal to buy up to $1.25 trillion of agency MBS, $300 billion of Treasuries and $200 billion of agency debt in 2009. The purchases are part of efforts to lower borrowing costs.

"The hope is that the Fed can keep rates low long enough to kick-start a housing recovery," Walters said.

"Whether that will work remains to be seen," he said.

TAME INFLATION DATA HELPS

Treasury yields, which are linked to mortgage rates, rose sharply earlier this month as their prices plunged when inflation fears eroded their appeal, and mortgage rates responded in kind.

Treasury yields, however, have come down recently, allowing rates to fall.