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Mortgage Applications Rise as Refinancing Jumps

ServicesSource: Associated Press

U.S. mortgage applications rose in the last week of January, reflecting a jump in demand for home refinancing loans even as interest rates rose to their highest levels since early December, data from an industry group showed Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications ,which includes both purchase and refinance loans, for the week ended Jan. 30 increased 8.6 percent to 795.4 after slumping 38.8 percent during the previous week.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.28 percent, up 0.06 percentage point from the previous week.

Three weeks earlier, mortgage rates were 4.89 percent, the lowest level recorded since the MBA survey began in 1990.

John Lonski, chief economist at Moody's Investors Service in New York, said the recent trend higher in mortgage rates is a setback for the U.S. housing market and not what the economy needs right now.

"In this environment, we cannot afford to have mortgage rates going up, especially because of how critical the stabilization of housing is to any steadying of the overall economy," Lonski said on Tuesday.

"We cannot have a bottoming of the macro economy without first stabilizing home sales," he said.

Indeed, enticing mortgage rates impacts demand. The National Association of Realtors said on Tuesday its Pending Home Sales Index, based on contracts signed in December, surged 6.3 percent to 87.7 in December, the first increase since August.

The index, a key gauge of future home sales activity, tracks signed, not closed, contracts, so it is influenced by changes in mortgage rates.

The MBA's seasonally adjusted purchase index fell 11.2 percent to 261.4 in the latest week.

The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was down 9.2 percent.

The Mortgage Bankers seasonally adjusted index of refinancing applications ,meanwhile, jumped 15.8 percent to 3,906.3.

Mortgage Rates Up

The U.S. housing market is in the worst downturn since the Great Depression and its impact has rippled through the recession-hit economy, as well as the rest of the world.

Economists contend that the economy might not emerge from its slump unless the housing market stabilizes.

"Extraordinarily low mortgage yields are absolutely necessary to compensate potential home buyers for home price deflation risk and heightened unemployment risk," Lonski said. "That will probably require more intervention from the government."

The recent rise in mortgage rates can be tied to U.S. Treasury yields, which are linked to mortgage rates.

Treasury yields have risen sharply on fears over surging debt issuance to fund a ballooning budget gap and an array of government rescue programs.

Prior to the recent rise, 30-year mortgage rates had mostly been on a downward trend ever since the Federal Reserve unveiled a plan in late November to buy as much as $500 billion of mortgage securities backed by Fannie Mae ,Freddie Mac and Ginnie Mae.

The program also entails buying up to $100 billion of debt issued by Fannie Mae [FNM 0.52 -0.04 (-7.14%) ], Freddie Mac [FRE 0.52 -0.04 (-7.14%) ] and the Federal Home Loan Banks.

The adjustable-rate mortgage share of activity decreased to 2.1 percent in the latest week, down from 2.4 percent the previous week.

Fixed 15-year mortgage rates averaged 5.15 percent, up from 4.98 percent the previous week.

Rates on one-year ARMs increased to 6.09 percent from 5.96 percent.

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