June 3, 2009 / 12:49 PM / 10 years ago

U.S. mortgage applications down as rates surge higher

NEW YORK (Reuters) - U.S. mortgage applications fell last week, reflecting a plunge in demand for home refinancing loans as interest rates surged to their highest levels since late January, data from an industry group showed on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended May 29 decreased 16.2 percent to 658.7.

Tom Marano, chief executive of mortgage operations at GMAC, said in an exclusive interview with Reuters on Tuesday that home loan volume at GMAC is about 75 percent lower now than when mortgage rates hit record lows several months ago.

“Up until the past week and a half, the Federal Reserve had been successful at bringing interest rates on mortgages down,” he said.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.25 percent, up 0.44 percentage point from the previous week, its highest level since the week ended January 30.

That level was also significantly higher than the all-time low of 4.61 percent set in the week ended March 27. The survey has been conducted weekly since 1990. Interest rates, however, were well below year-ago levels of 6.17 percent.

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.

But the Fed has met resistance in the bond market. Treasury yields have risen sharply in recent weeks, and mortgage rates have responded in kind.

However, demand for home purchase loans, an indicator of home sales, rose last week. The increase may help gauge how the hard-hit U.S. housing market is faring this spring, the peak home buying season.

The MBA’s seasonally adjusted purchase index rose 4.3 percent to 267.7, its highest level since the week ended April 3. The index, however, came in well below its year-ago level of 333.6, a drop of 19.8 percent.

Overall mortgage applications last week were 31.1 percent above their year-ago level. The four-week moving average of mortgage applications, which smooths weekly volatility, was down 9.0 percent.

WEEKLY REFINANCING ACTIVITY PLUNGES

Celia Chen, senior director of housing economics at Moody’s Economy.com in West Chester, Pennsylvania, said government policies are helping to stabilize the housing market but does not expect much of a rebound this year or even in the first half of next year.

“Prices will continue falling because of foreclosures,” she said. “Without policy, conditions would be even worse.”

“Mortgage rates are rising again, but the Fed’s intention is to keep them low, so it will likely take steps to do so,” she said.

The U.S. housing market is in the worst downturn since the Great Depression, and its impact has rippled through the recession-hit economy. Economists contend the economy might not emerge from its slump unless the housing market stabilizes.

The Mortgage Bankers’ seasonally adjusted index of refinancing applications decreased 24.1 percent to 2,953.6, its lowest level since the week ended February 6.

The index was up 97.4 percent from its year-ago level of 1,496.1.

The refinance share of applications decreased to 62.4 percent from 69.3 percent the previous week.

Fixed 15-year mortgage rates averaged 4.80 percent, up from 4.44 percent the previous week. Rates on one-year ARMs increased to 6.61 percent from 6.55 percent.

Editing by Padraic Cassidy

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