NEW YORK (Reuters) - Mortgage applications rose last week to the highest level since July 2005 despite a jump in borrowing costs, an industry group said on Wednesday.
The Mortgage Bankers Association's index of mortgage applications rose by a seasonally adjusted 2.5 percent to 811.8 in the week ended December 7, boosted by demand for both purchases and refinancing loans.
The trade group's index continues to be skewed by borrowers filing numerous applications in the hopes of getting one approved, analysts contend.
Lenders are much more stringent in extending credit after being stung by loans that had been doled out when practices were much looser. Last week the MBA reported record foreclosures as well as a record pace of loans entering the foreclosure process in the third quarter.
"Buyers out there are scared about their mortgage applications being turned down, and anecdotes show they are actually applying for more mortgages with more companies," Steve Wyatt, a professor of finance at the Farmer School of Business at Miami University said on Tuesday prior to the release of the MBA report.
"Higher applications are not necessarily as indicative of demand as they might have been before," and have not been translating to higher sales, he said.
Borrowing costs on 30-year fixed-rate mortgages averaged 6.07 percent excluding fees, up 25 basis points, nearly reversing the drop seen in the prior week.
Loan rates have run higher, however, for much of the year, peaking at 6.65 percent in early July, according to the MBA.
The trade group also said its purchase index rose 1.7 percent to 472.0 and a refinancing gauge climbed 4.3 percent to 2,879.8 on a seasonally adjusted basis.
The Federal Reserve's quarter-percentage-point cut in benchmark U.S. rates on Tuesday will do little to directly stimulate the housing market, Wyatt said.
"Rates cuts can indirectly help the banking system weather the credit problems," he said. "But it has not yet resulted and won't any time soon result in an increase in demand for housing because we've taken so many potential buyers out of the market with the increase in lending standards."
