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Mortgage Applications Rise in 3rd Straight Week

U.S. mortgage applications rose for a third consecutive week, reflecting an increase in demand for home loan refinancing as interest rates plunged, an industry group said on Wednesday.

Foreclosured Home
David J. Phillip
Foreclosured Home

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, increased 1.7 percent to 522.2 for the week ended July 11.

While the increase was modest, the report offers a glimmer of hope for a U.S. housing market that is suffering one of the worst downturns in its history.

Significantly tighter lending standards and an unwieldy supply of homes for sale are just some of the factors preventing the U.S. housing market from recovering from its two-year-long slump.

The frenzy of foreclosures hitting the market is aggravating matters, adding supply and depressing home prices nationwide, analysts say.

Most recently, widespread worries about funding problems at Fannie Mae

and Freddie Mac -- two pillars of the U.S. housing market -- have moved to the forefront.

The two mortgage finance companies own or guarantee nearly half of the entire U.S. mortgage market, so their participation is seen as key amid the worst U.S. housing market downturn since the Great Depression.

The U.S. Treasury Department and the Federal Reserve took wide-ranging and unprecedented steps on Sunday to boost confidence in the companies, but it is too early to tell whether these initiatives will make an impact, according to Michelle Meyer, an economist at Lehman Brothers in New York.

"It is still a big question mark, but if the plan is received well, it will be a positive for Fannie Mae and Freddie Mac and they will be able to return to normal functioning," she said in an interview on Tuesday before the release of the MBA data.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.22 percent, down 0.21 percentage point from the previous week.

Interest rates were below year-ago levels of 6.61 percent.

The MBA's seasonally adjusted purchase index dropped 1.7 percent to 359.7.

The index came in well below its year-ago level of 446.5, a drop of 19.4 percent.

Overall mortgage applications last week were 17.3 percent below their year-ago level.

The four-week moving average of mortgage applications, which smoothes the volatile weekly figures, was up 0.7 percent to 493.7.

Refinancing Rises

The group's seasonally adjusted index of refinancing applications increased 6.9 percent to 1,474.9.

The index was down 14.1 percent from its year-ago level of 1,717.4.

The refinance share of applications increase to 39.2 percent from 37.3 percent the previous week.

The adjustable-rate mortgage (ARM) share of activity decreased to 9.1 percent, down from 10.0 percent the previous week.

Fixed 15-year mortgage rates averaged 5.74 percent, down from 5.94 percent the previous week.

Rates on one-year ARMs dipped to 7.16 percent from 7.24 percent.

While U.S. housing market indexes tend to be volatile, data from the MBA may help gauge how the hard-hit sector is faring.

More insight into the state of the U.S. housing market will emerge this week.

The National Association of Home Builders on Wednesday will release its NAHB/Wells Fargo Housing Market Index for July.

The Commerce Department on Thursday will report data on U.S. housing starts.

  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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