Mortgage rates hit highest level in 7 months; refinancing activity slows

The average rate for a 30-year fixed mortgage was 5.59 percent this week, up from 5.29 percent last week, Freddie Mac said. The last time the average 30-year fixed-rate mortgage was higher was the week ended Nov. 26 of last year, when it averaged 5.97 percent.

Frank Nothaft, Freddie Mac's chief economist, said the higher rates followed an increase in bond yields, a barometer for interest rates on mortgages and other loans.

On Wednesday, the government was forced to lift the yield on 10-year Treasury notes to 3.99 percent to lure in buyers at an auction. That was the highest yield it has offered since last August, before it started bailing out the nation's financial industry.

Though there are signs that the troubled housing market is beginning to stabilize, higher rates could threaten or slow down any recovery, since borrowers would be able to borrow less money and might decide to hold off on their purchases. Nothaft said the higher rates "are slowing refinancing activity but not demand for home purchases."

During the three weeks ended June 5, interest rates for 30-year fixed-rate mortgages rose nearly one-half of a percentage point, Nothaft said. Conventional mortgage applications for refinancing fell each week during that period, while applications for home purchases consecutively increased, according to the Mortgage Bankers Association.

Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country. Rates often fluctuate significantly, even within a given day.

The average rate on a 15-year fixed-rate mortgage rose to 5.06 percent, up from 4.79 percent last week, according to Freddie Mac.

Rates on five-year, adjustable-rate mortgages averaged 5.17 percent, up from 4.85 percent last week. Rates on one-year, adjustable-rate mortgages rose to 5.04 percent from 4.81 percent.

Also yesterday, the federal government said about 150,000 homeowners at risk of default have been offered the chance to modify their mortgages to more affordable terms under the federal Making Home Affordable program.

Loan modifications from the program, implemented in March, will expand "substantially" now that the initiative is fully underway Housing and Urban Development Secretary Shaun Donovan told a Senate appropriations subcommittee. He didn't say how many modifications have been completed.

The Making Home Affordable program requires banks that received federal aid from the US Treasury's Troubled Asset Relief Program as well as mortgage-finance companies Fannie Mae Freddie Mac to lower the monthly payments for borrowers at "imminent risk" of default.