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(Corrects the year-ago level on 30-year mortgages in 10th paragraph)
By Julie Haviv
NEW YORK (Reuters) - Mortgage applications jumped in the first full week of 2009 as record low interest rates spurred the greatest demand for home refinancing loans in over 5-1/2 years, data from an industry group showed on Wednesday.
Low mortgage rates, however, have yet to fuel demand for loans to purchase homes.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended January 9 increased 15.8 percent to 1,324.8, the highest reading since the week ended July 11, 2003, when it reached 1,358.2.
Thirty-year mortgage rates have dropped dramatically since the Federal Reserve unveiled a plan in late November to buy as much as $500 billion of mortgage securities backed by Fannie Mae FNM.P FNM.N, Freddie Mac FRE.PFRE.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 refinance share of applications increased to 85.3 percent from 79.8 percent the previous week, the highest level since the MBA started conducting its survey in 1990.
Spencer Rascoff, chief operating officer at Zillow.com, an online real estate service company based in Seattle, said loan requests to his company are up more than 200 percent from just two months ago, with loan requests on pace to hit about 25,000 in January and loan quotes on pace to hit 200,000.
"Many experts agree that rates will stay relatively low for at least the next few months since the federal government is now committed to buying mortgage-backed securities to keep borrowing costs low," Rascoff said on Tuesday.
"But the future of rates isn't certain, so locking in these low rates now is a smart move," he said.
Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.89 percent, down 0.18 percentage point from the previous week, the lowest level recorded in the MBA's survey's history.
Interest rates were well below year-ago levels of 5.62 percent.
"Our business has definitely increased dramatically in the past few weeks with rates dropping," Melissa Cohn, chairman and chief executive CEO of Manhattan Mortgage Company in New York, said on Tuesday.
Cohn said the telephones at her company have been ringing off the hook and while the company has not hired additional staff, it has retained as many people as possible.
"We are just working twice as hard to handle the increased volume," she said.
Meanwhile, though, the MBA's seasonally adjusted purchase index fell 14.1 percent to 295.8. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 10.8 percent.
The prospect of affordable home financing has provided a glimmer of hope for the U.S. economy with the housing market in the worst downturn since the Great Depression.
The Mortgage Bankers seasonally adjusted index of refinancing applications jumped 25.6 percent to 7,414.1, the highest reading since the week ended June 27, 2003, when it reached 8,599.1.
The adjustable-rate mortgage share of activity increased to 1.1 percent, up from 0.9 percent the previous week.
Fixed 15-year mortgage rates averaged 4.63 percent, down from 4.67 percent the previous week. Rates on one-year ARMs decreased to 5.89 percent from 5.90 percent.
Editing by Kenneth Barry