Mortgage applications soar amid a scurry to refinance

Research released Wednesday showed that mortgage applications soared last week to their highest level in more than five years as borrowers took advantage of near record-low interest rates.

The Mortgage Bankers Assn. trade group said its application index surged 48% in the week ended Dec. 19, reaching the highest level since July 2003. More than 80% of applications came from borrowers looking to refinance into loans with more affordable rates.

Interest rates plunged last month after the Federal Reserve said it would spend as much as $600 billion buying mortgage-backed securities and other debt issued by government-controlled mortgage finance companies Fannie Mae and Freddie Mac.

Refinance volume grew nearly 63%, while purchase volume rose by nearly 18%.

The index is still below its peak hit in May 2003 during the housing boom.

The survey provides a snapshot of mortgage lending activity involving mortgage bankers, commercial banks and thrifts. It covers about half of all new residential mortgage loans each week.

The average rate for traditional 30-year fixed-rate mortgages decreased to 5.04% from 5.18% a week earlier, according to the MBA report. That was the lowest point in the weekly survey since rates fell to 4.99% in June 2003.

The average rate for 15-year fixed-rate mortgages fell to 4.91% from 4.93%, while the average rate for one-year adjustable-rate mortgages fell to 6.36% from 6.63%.

Analysts say the Fed’s moves to buy up mortgage debt are designed to reduce an unusually large difference, or spread, between mortgage rates and yields on government debt.

Falling interest rates mean consumers could find extra dollars in their pockets at a time when they have sharply cut back on spending. However, many experts believe the rate cuts alone won’t be enough to jump-start the economy.