Home loan demand surges to over two-year high

By Julie Haviv

NEW YORK (Reuters) - Mortgage applications surged last week to their highest in nearly 2-1/2 years as interest rates plunged, an industry group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications for the week ended November 30 surged 22.5 to 791.8, its highest since July 2005.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.82 percent, down 0.27 percentage point from the previous week and its lowest since the week ended September 16, 2005.

Last week's interest rates were also below year-ago levels, which then were 5.98 percent.

Mortgage rates have fallen along with U.S. Treasury yields. The benchmark 10-year U.S. Treasury note yield has fallen recently to below 4 percent.

The MBA's seasonally adjusted purchase index jumped 15.2 percent to 464.3. The index came in above its year-earlier level of 426.6.

Demand for home loan refinancing also surged last week.

The group's seasonally adjusted index of refinancing applications skyrocketed 31.9 percent to 2,761.3, its highest since the week ended July 1, 2005, when it reached 2,788.2.

Many analysts, however, say the MBA's data is artificially inflated.

Prospective borrowers have been filing multiple applications to obtain a single loan due to widespread tightening of lending standards, which economists say has been skewing the data in recent months.

The MBA's data counts all applications, including borrowers who are ultimately denied.

Additionally, the MBA's data, which covers about 50 percent of all U.S. retail residential loans, may be overstating activity since it includes only retail lenders such as mortgage banks, commercial banks and thrifts.

DATA REVISION FOR THANKSGIVING WEEK

The MBA also said on Wednesday that it was revising its data for the week ending November 23 "due to an error of one of the larger reporting companies for the Thanksgiving-shortened week."

It said the seasonally adjusted market composite for that week was 646.3 rather than the 652.5 originally reported.