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The Mortgage Bankers' Association's index of applications to buy a home or refinance a loan soared 32 per cent for the week ended March 20, as the interest rate on a 30-year fixed rate mortgage plunged to a record low of 4.63 per cent. The low rates prompted homeowners to refinance their mortgages to trim their monthly payments.

The government's efforts to revive the housing market have focused on supporting low mortgage rates through Fed purchases of mortgage securities, as well as on -lowering barriers to refinancing and mortgage -modification.

Jay Brinkmann, chief economist at the MBA, said one of the biggest operational challenges was the lack of so-called "warehouse" financing for non-depository lenders.

Borrowing costs at record lows ; Homeowners trim monthly payments

Applications for US mortgages surged last week as banks lowered borrowing costs after the Federal Reserve's decision to buy Treasuries pushed interest rates to record lows.

The Mortgage Bankers' Association's index of applications to buy a home or refinance a loan soared 32 per cent for the week ended March 20, as the interest rate on a 30-year fixed rate mortgage plunged to a record low of 4.63 per cent. The low rates prompted homeowners to refinance their mortgages to trim their monthly payments.

The MBA's refinancing index surged 42 per cent and its purchase index gained 4.2 per cent.

The low mortgage rates coupled with falling house prices have also helped to spur a slight pick-up in home sales in recent weeks.

Sales of new homes in the US rebounded from a record low in February, according to data released yesterday. Sales rose for the first time in seven months as falling prices began to lure buyers back into the market. New home sales climbed 4.7 per cent month on month after plunging by a revised 13.2 per cent in January.

Compared to a year ago, however, home sales and prices remain extremely depressed.

Year-on-year new home sales were down by 41.1 per cent in February and median prices were down by 18.1 per cent.

Omair Sharif, analyst at RBS Greenwich Capital, said: "It is clearly far too early to call a bottom in the housing market, especially given the deterioration in the labour market, but the February data have allayed some fears that the housing market would continue to freefall."

The government's efforts to revive the housing market have focused on supporting low mortgage rates through Fed purchases of mortgage securities, as well as on -lowering barriers to refinancing and mortgage -modification.

Interest rates on mortgages tumbled last week after the Fed said it would buy $300bn of Treasury securities, as well as more than double its planned purchases of mortgage-related securities to $1,250bn.

Mortgage lenders could originate as much as $2,780bn of new home loans this year, according to the MBA's forecast, of which $1,960bn could be the result of refinancing.

However, it warned that such a wave of applications would be a big operational test for the industry, not least because of the need for closer scrutiny of documents and appraisals after an -"epidemic of fraud" against lenders in recent years.

Mortgage applications already require a great deal of paperwork, say analysts.

Jay Brinkmann, chief economist at the MBA, said one of the biggest operational challenges was the lack of so-called "warehouse" financing for non-depository lenders.

These are loans used to help such lenders fund their mortgage originations before the mortgages are sold into the secondary market.

Many banks have withdrawn from the warehouse lending market, leaving non-bank lenders struggling to find the funds to meet demand from homeowners.

Non-depository lenders have in the past made up as much as 40 per cent of the mortgage market, but about 90 per cent of warehouse financing has dried up this year.

Credit: By Saskia Scholtes and Alan Rappeport in New York