Applications for U.S. home mortgages fell to its second-lowest level of the year last week as interest rates rose, an industry group said on Wednesday.The Mortgage Bankers association said its seasonally adjusted index of mortgage application activity fell 7.8 percent to 621.6 in the week ended May 16. The index touched its 2008 low in the week of April 25, when it hit 567.

The MBA’s seasonally adjusted index of refinancing applications declined 8.7 percent to 2,210.5 last week, the MBA said. The gauge of loan requests for home purchases dropped 6.9 percent to 352.5 in the period.

Applications for refinancings fell 8.7 percent to 2210.5 from 2422.1 the previous week.

Fixed 30-year mortgage rates averaged 5.9 percent in the week, 8 basis points higher from the prior week.

Relatively low interest rates have been among the few supports to housing, where soaring foreclosures have sparked unprecedented moves by lawmakers to stabilize the market.

The Senate Banking Committee on Tuesday approved a bill that aims to refinance borrowers whose home values have fallen below the balance of their loan into a government-backed program.

Falling home prices have made an increasing number of U.S. homeowners more vulnerable to default. Nearly a third of subprime borrowers owed more than their home was worth at the end of last year, and that figure will double to 63 percent in 2009, according to Credit Suisse. (Reporting by Al Yoon; Editing by Theodore d’Afflisio)

Source : http://www.reuters.com/article/bondsNews/idUSNAT00405220080521