Mortgage Rates Rise

June 11 (Bloomberg) -- Fixed U.S. mortgage rates rose to the highest since November, signaling that the Federal Reserve’s plan to lower borrowing cost is stalling.

The average 30-year rate jumped to 5.59 percent from 5.29 percent a week earlier, Freddie Mac, the McLean, Virginia-based mortgage buyer, said today in a statement. The 15-year rate averaged 5.06 percent.

Rising rates may deepen the U.S. housing slump by sidelining people who want to refinance or purchase a house. U.S. mortgage applications fell last week to the lowest since February and shares of the largest homebuilders have dropped 11 percent since May 1 on concern more expensive home loan payments will turn away prospective buyers.

“The economy doesn’t need higher mortgage rates because that will depress the level of home sales, cut off refinancing, and keep consumer spending sluggish,” said Patrick Newport, an economist with Lexington, Massachusetts-based IHS Global Insight.

The increase in rates announced today was the biggest weekly jump since October. Rates were last higher in the week ended Nov. 27, when they were 5.97 percent.

The Federal Reserve said March 18 it would purchase as much as $1.25 trillion in securities from mortgage-buyers Fannie Mae and Freddie Mac to help drive borrowing costs lower. Yields on Fannie Mae and Freddie Mac mortgage securities rose yesterday to a level not seen since the Fed announced its plan. The program helped push rates to a record low 4.78 percent twice in April.

Now rates are climbing along with Treasury yields on investor concern that a greater supply of government debt being sold to fund federal spending will fuel inflation.

Buying Program

The central bank’s purchases of mortgage bonds guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae initially brought down the yields on those securities, allowing lenders to reduce rates on new loans and still sell them at a profit.

The Fed has bought a net $507.1 billion of mortgage bonds so far, including $25.5 billion in the week ended May 27, according to Bloomberg data.

Rates are rising as home prices continue to drop and foreclosures rise. U.S. foreclosure filings surpassed 300,000 for the third straight month in May and may hit a record 1.8 million by the first half of the year, RealtyTrac Inc. said today.

A total of 321,480 properties received a default or auction notice or were repossessed last month, up 18 percent from a year earlier, the Irvine, California-based seller of default data said in a statement. One in 398 U.S. households received a filing last month.

Home prices in 20 major metropolitan areas fell more than forecast in March as defaults surged. The S&P/Case-Shiller home- price index decreased 18.7 percent from March 2008, matching the drop in the year ended in February. The measure declined 19 percent in January, the most since data began in 2001.

The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan dropped 7.2 percent to 611 in the week ended June 5. Purchase applications rose 1.1 percent while requests to refinance fell 12 percent.