UPDATE 4-US mortgage rates drop to new low, foreclosures up

(Adds data from Mortgage Bankers Association)

By Julie Haviv

NEW YORK, Jan 15 (Reuters) - U.S. mortgage rates dropped to another record low this week, giving a glimmer of hope for the hard-hit housing market even as data showed one in every 54 households received at least one foreclosure filing notice last year.

Interest rates on the 30-year fixed-rate mortgage averaged 4.96 percent for the week ending Jan. 15, down from the previous week's 5.01 percent, its 11th straight weekly decline, according to Freddie Mac.

Low mortgage rates have spurred a surge in home refinancing loans, and refinancing to lower monthly payments should provide a bit of relief to strapped consumers amid rising unemployment and a shrinking economy.

But the precipitous drop in mortgage rates has made only a marginal impact on demand for loans to purchase a home, offering little sign of a recovery from the worst housing downturn since the Great Depression.

"These things take time, so we cannot expect a pick up in demand for home purchasing to happen overnight," said Lawrence J. White, professor of economics at New York University's Stern School of Business.

"The fact that interest rates have dropped to a record low is an important development since more affordable home financing could help bring buyers back to the market and prevent some of these foreclosures," he said.

U.S. foreclosure activity jumped 81 percent in 2008, suggesting various state laws and private programs to slow the process have been ineffective, RealtyTrac reported on Thursday. For details, double-click on [ID:nN14473484]

Nearly 3.2 million foreclosure filings on 2.3 million properties were made last year, the Irvine, California-based research firm said. Filings include notice of default, auction sale or bank repossession.

"For those looking to buy a home, the serious question for them is when home prices will stop falling," White said.

"At some point, home prices will either stop falling or have fallen enough to bring buyers to the market and mortgage rates at these levels will certainly help," he said.

Mortgage rates have dropped dramatically ever since the Federal Reserve unveiled a plan in late November to buy up to $500 billion of mortgage securities backed by government-sponsored enterprises, Fannie Mae (FNM.P) (FNM.N), Freddie Mac (FRE.P) (FRE.N), and Ginnie Mae. The program also entails buying up to $100 billion of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

The 30-year fixed-rate mortgage has not been lower since Freddie Mac started the Primary Mortgage Market Survey in 1971.

At a minimum, the latest surge in mortgage refinancing should improve household cash flow by enough to moderate the deterioration of consumer spending, according to John Lonski, chief economist at Moody's.

"The surge in refis will not immediately stabilize consumer spending, but it does improve the outlook for retail sales 6 to 12 months hence," he said in commentary published Thursday.