Mortgage Rates Climb as Housing Grasps For Recovery

Mortgage rates edged upward over the past week, despite the Federal Reserve's aggressive cost-cutting measures and Wall Street's eagerness to get past the housing crisis.

AP Homes in Las Vegas

A 30-year fixed-rate mortgage now costs 5.88 percent, up slightly from last week's 5.85 percent, according to Freddie Mac, the second-largest US provider of home loan financing.

Rates are highest in the Northcentral region at 5.93 percent and lowest in the Southeast at 5.86 percent.

Mortgage rates have slipped from their recent high of 6.24 percent on Feb. 28 but borrowers continue to be hesitant to step back into the market.

Mortgage applications plunged 28.7 percent last week as the Mortgage Bankers Association said the rates, well below their year-ago level of 6.13 percent, failed to stem a huge drop in refinancing.

The move comes just as data is beginning to show the real estate market crawling its way back to recovery. The National Association of Realtors last week reported better-than-expected February home sales, and homebuilding has been the hottest sector of  the stock market in 2008.

Overall the MBA's mortgage index was up 6.0 percent from its 2007 level.

Rates for 15-year mortgages registered an especially sharp gain, from 5.34 percent to 5.42 percent. Five-year adjustable rate mortgages actually slipped from 5.67 percent to 5.59 percent, while one-year ARMs dropped from 5.24 percent to 5.19 percent.

ARM activity actually increased over the past week, suggesting banks were getting a bit more comfortable returning to the adjustable-rate issues that led to much of the subprime mortgage collapse. Banks have tightened lending requirements across the board, but particularly for borrowers with lower credit scores and less money for down payments.

Many lenders are requiring a 15 percent down payment or equity before lending. At the same time, Fannie Mae and Freddie Mac , secondary mortgage brokers who buy up initial mortgages, have issued tighter lending requirements to banks.

And investors continue to be wary of mortgage-backed securities, turning instead to the safe haven of Treasury bonds even though they have significantly lower-yields than their counterparts in the mortgage industry. That in turn dries up liquidity and makes banks more particular as to whom they are lending money, with decent credit and some money for a down payment looming far larger following the subprime meltdown.

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