By Courtney Schlisserman

Dec. 24 (Bloomberg) -- Mortgage applications in the U.S. jumped 48 percent last week as the lowest borrowing costs in five years promoted a surge in refinancing.

The Mortgage Bankers Association’s index of applications to buy a home or refinance a loan rose to 1,245.4, the highest since 2003, from 841.4 a week earlier. The group’s refinancing gauge rose 63 percent and purchases gained 11 percent.

The average rate on a 30-year fixed mortgage dropped to the second-lowest level on record, giving owners an opportunity to lower monthly payments. Even with the increase in purchase applications, the gauge was still close to an eight-year low, indicating the slump in sales is likely to persist into 2009.

“People have been out shopping for refinancing,” Leif Thomsen, Chief Executive Officer of Mortgage Master Inc., a Walpole, Massachusetts-based mortgage company, said in an interview before the report. The company has hired 50 people recently to handle the increase in refinancing, he said. “If we were relying just on the purchase applications, it would be dismal.”

The MBA’s refinancing index climbed to 6,758.6 last week, from 4,156 a week earlier. The purchase gauge rose to 316.5, from 286.1. The 248.5 reading in the middle of last was the lowest since the December 2000.

Reports yesterday showed the housing recession intensified. Sales of single-family homes in the U.S. dropped in November by the most in almost twenty years and resale prices had the biggest decline since record keeping began in 1968, according to data from the Commerce Department and the National Association of Realtors.

Obama’s Plan

President-elect Barack Obama plans an unprecedented economic stimulus to restore growth, and pledged on Dec. 13 to limit foreclosures. One tenth of U.S. families who own a home are in financial distress, Obama said.

“We need desperately to get this economy moving,” Vice President-elect Joseph Biden, who is leading the incoming administration’s initiative to bolster the middle class, told reporters before a meeting with Obama’s economic advisers yesterday. Transition officials are “getting very close” to an agreement with lawmakers on the size of the stimulus, Biden said.

The average rate on a 30-year fixed-rate loan dropped to 5.04 percent last week, the lowest in more than five years, from 5.18 percent a week earlier.

At the current rate, monthly borrowing costs for each $100,000 of a loan would be about $539.27, almost $100 less than in mid July.

Record Share

The share of homeowners seeking to refinance a loan jumped to a record 83.2 percent from 76.9 percent a week earlier.

Today’s report also showed the average rate on a 15-year fixed mortgage decreased to 4.91 percent from 4.93 percent. The rate on a one-year adjustable loan fell to 6.36 percent from 6.63 percent.

Lennar Corp., the largest U.S. homebuilder by revenue, reported its seventh straight quarterly loss on Dec. 18. New orders fell 46 percent in the fiscal fourth quarter from a year earlier and the cancellation rate for projects was 32 percent.

The Washington-based Mortgage Bankers Association’s loan survey, compiled every week since 1990, covers about half of all U.S. retail residential mortgage originations.

To contact the reporter on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.net
Last Updated: December 24, 2008 07:00 EST