Long-term mortgages rates climbed higher during the latest week as U.S. Treasury bond yields increased, according to mortgage giant Freddie Mac Thursday.

In its weekly mortgage market survey, Freddie Mac found that the average interest rate on a 30-year mortgage loan jumped to 6.46 percent, excluding fees, during the week ended Oct. 30, 2008, up from 6.04 percent the previous week. One year ago, the average rate was 6.26 percent.

“Long-term mortgage rates followed long-term Treasury bond yields higher this week, pushing fixed-rate mortgages up to levels of two weeks ago,” said Frank Nothaft, Freddie Mac vice president and chief economist. Analysts have noted that many safety-minded investors have flocked to the dependable returns of Treasury bonds lately, scared away from volatile Wall Street investments.

Nothaft also commented on other types of loan interest rates. “The Federal Reserve’s 0.50 percentage point cut in the discount rate and federal funds target rate on Wednesday was widely anticipated in the financial markets and is likely to keep short-term interest rates low; consequently, initial interest rates on ARMs, which tend to be set relative to other short-term rates, may remain near current levels.”

Rates on 15-year fixed rate home loans averaged 6.19 percent, an increase from 5.72 percent the week before. Last year at this time, the average rate was 5.91 percent.

Interest rates on one-year adjustable rate mortgages also jumped, moving up to 5.38 percent from 5.23 percent last week. During the same week in October 2007, one-year ARMS averaged 5.57 percent.

Nothaft additionally mentioned other positive market factors that have influenced the direction of rates recently. “In other news,” he said, “house-price declines in many markets have improved housing affordability and stimulated home sales. In September, sales of existing homes rose 5.5 percent while sales of new homes were up 2.7 percent, at a seasonally-adjusted annual rate.”

The number of struggling homeowners saved from foreclosure by the Hope Now coalition jumped up 12 percent to 212,000 in September from the previous month, a record high for the group.

“There’s a lot of help being offered and a lot of people actively seeking help,” said Faith Schwartz, director of Hope Now.

Hope Now represents a cooperative effort of mortgage lenders, investors and homeownership counselors, organized by the Bush administration, to combat waves of devastating foreclosures around the country.  Since the middle of 2007, the group has helped almost 2.5 million homeowners avoid foreclosure.

Hope Now has mainly concentrated on creating repayment plans for borrowers, which allow homeowners to make up their overdue balances by spreading them out and adding them to future mortgage payments.  There are plenty of critics of this strategy, however, who say this does not significantly reduce the burden on borrowers or make it easier for them to make their monthly payments.

Perhaps because of such critics, the coalition has increased its application of mortgage modifications, plans that permanently lower the interest rate or write down the loan balance or make some other change to the mortgage terms to make the payments more affordable.

Hope Now has readily admitted that it will not be able to save all homeowners from losing their homes.  It reported that there were still 85,793 cases of final foreclosure in September, and RealtyTrac, an online foreclosure data company, found that there were 265,968 new foreclosure filings in the same month.

“This is an emotional issue for homeowners,” Schwartz said, “and our job is to help them not lose heart, help them to stay engaged and realize there is help out there.”

“This is a very challenging time for many homeowners,” she added. “HOPE NOW members are continuing to explore new ways to help more homeowners avoid foreclosure and will keep looking for additional options. We urge concerned homeowners to call their servicer, Homeowner’s HOPE(TM) Hotline, or a HUD-certified counseling agency to get the help the need.”

After recently creating a program to save troubled mortgage and finance banks, the Treasury Department and the Federal Deposit Insurance Corp. (FDIC) are officially working on a plan that takes aim at the foreclosure crisis underpinning current economic turmoil. Under the powers of the new Emergency Economic Stabilization Act awarded to the Treasury Secretary, the joint effort is creating a proposal to curb “avoidable” foreclosures.

“The FDIC is working closely and creatively with Treasury to realize the potential benefits of this authority,” said Sheila Bair, chairwoman of the FDIC before the Senate Banking Committee Thursday.

She also gave some examples of the team’s brainstorming efforts.

“Loan guarantees could be used as an incentive for servicers to modify loans,” Bair said. “Specifically the government could establish standards for loan modifications and provide guarantees for loans meeting those standards. By doing so, unaffordable loans could be converted into loans that are sustainable over the long term.”

Bair has had experience in streamlining mortgage modification procedures recently, when the failing home loan lender IndyMac was taken into conservatorship by the FDIC. She created a standard process to modify loans that were delinquent by 60 days or more.  Under this program, roughly 40,000 of the 60,000 loans on IndyMac’s books would qualify for modification help.

“Through this week, IndyMac Federal has mailed more than 15,000 modification proposals to borrowers and has called many thousands more in continuing efforts to help avoid unnecessary foreclosures,” Bair said. “While it is still early in our implementation of the program, over 3,500 borrowers have accepted the offers and many more are being processed.”

According to the Chairwoman, the IndyMac loan modifications have saved borrowers an average of $380 on their monthly mortgage payments.

Although she recognized that not all homeowners will be able to refinance and save their homes under the available programs, Bair emphasized that “minimizing foreclosures is important to the broader effort to stabilize global financial markets and the U.S. economy.”

After being taken over by the U.S. government in September, mortgage lending giants Fannie Mae and Freddie Mac are being retooled to get the troubled housing market back on track, instead of focusing on creating larger profits for the company shareholders and executives.

This means drastic cuts and changes in the personnel and policies, initiated at the direction of two new CEOs, hired seven weeks ago when the government took control of the failing mortgage lenders.

“Anything that is not necessary under the old traditions, we are going to discard,” said Fannie Mae Chief Executive Herb Allison Monday.

“Instead of focusing on maximizing returns, we (will) focus on what is the minimum return on capital that is necessary,” added Allison.

And Freddie Mac’s new CEO echoed the same sentiments.”Providing more liquidity to the market has been our primary focus,” said David Moffett, at a conference for the Mortgage Bankers Association.

Some of the changes that have already been made include a decision by both companies to halt future processing fee hikes that would bring in more profit, but make it more expensive and challenging for home buyers to get a mortgage loan.

Freddie Mac also announced last week that it will no longer accept no-doc loans, mortgages requiring no proof of income. These “liar loans” allowed many to jump into the housing market without truly having the ability to make the monthly payments. The result has been an intense rate of default, leading to a housing market overstocked with foreclosed homes.

Both Allison and Moffett have aimed much of their energy at helping borrowers refinance out of their costly adjustable rate mortgages into more affordable terms, hopefully saving them from foreclosure. And while Fannie Mae alone has saved 300,000 borrowers this year from losing their homes, according to Fannie’s Allison, “that is not good enough. We need to ramp up our activities.”

Average interest rates on long-term U.S. home loans increased by the fastest pace in over twenty years during the latest week, according to mortgage giant Freddie Mac Thursday.

The company reported that 30-year fixed-rate mortgages carried an average rate of 6.46 percent, excluding fees during the week ended Oct. 16, a growth of 52 basis points from 5.94 percent the week before. That represents the largest weekly increase since the middle of April 1987. The current rate is even up from last year at this time when the rate was 6.40 percent.

The average rate on 15-year fixed rate loans rose to 6.14 percent during the previous week, from 5.63 percent. One year ago, the average was 6.08 percent.

One-year adjustable rate mortgages (ARMs) saw little change, however, as the average rate inched up to 5.16 percent from 5.15 percent a week earlier. Last year, the average rate was 5.76 percent.

“Interest rates for 30-year fixed-rate mortgages rose this week to an 8-week high,” said Frank Nothaft, Freddie Mac vice president and chief economist. “ARM rates, which tend to be based on shorter-term benchmarks, showed smaller gains in part due to the Federal Reserve’s October 8 inter-meeting rate cut in the overnight lending rate.

“Recent economic reports suggest the economy is still slowing. For instance, retail sales fell for the third consecutive month by 1.2 percent in September. In addition, in its latest Beige Book, released October 15th, the Federal Reserve indicated that economic activity weakened in September across all twelve Federal Reserve Districts and that several Districts also noted that their contacts had become more pessimistic about the economic outlook.”

On a regional level, average rates on 30-year mortgages were highest in the Southeast at 6.51 percent, excluding fees, and lowest in the West at 6.37 percent.

The number of U.S. homeowners that are “upside down” in their mortgages has quadrupled in the past two years, according to a recent report from Moody’s Economy.com.

Of the 75.5 million homeowners across the nation, about 12 million of them now owe more on their mortgages than their homes are worth, a situation that is also known as negative amortization. That means that roughly 12 percent, or one in six, of all homeowners have a mortgage balance greater than the value of their property.

By comparison, only 4 percent of borrowers were upside down in their mortgages in 2006 and 6 percent had negative equity by 2007.

And among those who bought a home in the past five years, the distinction is even more pronounced; approximately 29 percent in that category are “under water” on their home loans, according to the real estate website Zillow.com. This statistic is likely due to the fact that home prices reached their highest point during the past five years and mortgage lending standards were also at their loosest.

Home prices have made a steady decline since their peak in mid-2006, falling 13 percent to the current national median price of $203,000. That represents a more affordable price-to-income ratio, at 1.9 times the average pre-tax income, compared with prices that were 1.87 times the average income during the period of 1985 to 2000.

And while the number of people in mortgages with negative amortization is growing, the majority of homeowners, about 64 million, still have some equity in their home, with more than 24 million owning their homes completely, with no remaining mortgage balance.

Still, defaults and foreclosures are on the rise, and it can  be very difficult for those who have no equity and are way behind on their payments to hold on to their homes. The foreclosure crisis may continue to deepen as struggling homeowners face falling home values and fewer available mortgage lending resources.

As financial markets around the globe seized in turmoil Wednesday, the Federal Reserve along with five other central banks made emergency cuts to their target interest rates by a half point.

“Incoming economic data suggest that the pace of economic activity has slowed markedly in recent months,” the Fed said in its Wednesday night statement. “Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit. Inflation has been high, but the Committee believes that the decline in energy and other commodity prices and the weaker prospects for economic activity have reduced the upside risks to inflation.”

In an unprecedented and concerted effort, the Fed joined with the European Central Bank, the Bank of England, the Swiss National Bank and the Swedish Bank in trimming back already low rates to stimulate more positive economic activity and provide greater liquidity to the parched markets.

The U.S. federal funds rate now stands at 1.5 percent, its lowest level in more than four years.

The worldwide slash of interest rates did little to bolster consumer confidence however, as the Dow took another roller coaster ride on Thursday, closing down 678.91 points at 8,579.19. The NASDAQ also fell, dropping to 1,645.

Yet Olivier Bernard of the International Monetary Fund explained the Banks’ decision was primarily designed to head off deeper crisis, not serve as a “wonder drug” for the global economy. “The crucial role of both financial and macro economic policies at this juncture: it is clearly too late for responses to avoid the slowdown but they can be used to head off the risk of even more dire outcomes.”

The new bailout package approved Friday by Congress and President George W. Bush will only help in the short-run, not permanently cure the foreclosure crisis that is at the heart of the financial sector meltdown, according to the Center for Responsible Lending (CRL) Monday.

The bailout bill, designed to allow the federal government to buy up $700 billion of bad loans from major mortgage bankers, also provides for government resources to “implement a plan that seeks to maximize assistance for homeowners” once it acquires those soured home loans. Yet those at the CRL believe the bill’s language is not strong enough or specific enough to stem the tide of raging foreclosures.

“Any plan that fails to stop foreclosures will ultimately fail to fix the crisis,” said Michael Calhoun, president of CRL. “Wall Street firms and banks caused a massive foreclosure crisis in this country, and this bailout provides no meaningful way to end it. It doesn’t stop the epidemic of foreclosures that will continue to drag down property values for everyone.”

It is estimated that more than 6.5 million homeowners will lose their homes to foreclosure in the next few years. The CRL says that roughly 40 million homeowners in surrounding neighborhoods will also be affected as their property values will be negatively influenced by those vacant houses falling into disrepair.

Steven Adamske, spokesman for the House Financial Services Committee, however, says the new bill will make it easier for the government to stop foreclosures, especially when lenders are uncooperative. “If servicers are an impediment [to loan workouts] we can take another look at the industry next year and see if there are other actions we can take to remove roadblocks,” Adamske said. “…The government is here to help. We want to rebuild neighborhoods from the ground up.”

Still the CRL folks remain unconvinced. “Existing programs to modify mortgages can’t and won’t help enough homeowners quickly enough to fix what ails the economy. Voluntary modifications continue to be dwarfed by foreclosures. Our housing and economic crisis will not be repaired until we act to prevent unnecessary foreclosures,” Calhoun said.

A proposed $700 billion financial sector bailout bill passed in the Senate Wednesday night by a vote of 74-25, after the U.S. House of Representatives failed to pass a similar bill Monday.

The legislative package will give the federal government the authority and funding to buy up roughly $700 billion worth of soured mortgage and insurance securities from major corporate players that would otherwise face bankruptcy.

In an effort to pass the controversial piece of law, the Senate also included $150 billion of tax break extensions and an increase in the federal deposit insurance limit from $100,000 to $250,000.

Until now, public opinion about the bailout had been extremely negative, but the past week of dramatic Dow Jones dips seem to be softening the stance of many voters on this issue. The main concern has been that a “rescue” plan would reward companies for their risky behavior and encourage more bad choices in the future.

The House could vote on the Senate’s bailout plan as early as Friday and House Majority Leader Steny Hoyer was optimistic about the bill’s chances of passing.

“I think there’s a good prospect of getting that done tomorrow,” said the Maryland Democrat on Thursday.

House Financial Services Committee Chairman Barney Frank was more cautious in his predictions.

“It’s still uncertain. I think it is likelier to pass than before,” Frank, a Massachusetts Democrat said in a CNN interview. “The main change is reality. I think that it’s not possible now to scoff at the predictions of doom if we don’t do anything.”

In other mortgage news, a new government program to help troubled homeowners began Wednesday and is expected to help as many as 400,000 American families.

HOPE for Homeowners gives the Federal Housing Administration (FHA) greater ability to insure home loans for mortgage holders facing foreclosure because of skyrocketing interest rates on their ARM loans.

The plan allows the FHA to back up to $300 billion in refinance home loans, but lenders must voluntarily participate, writing down such loans to 90 percent of their current appraised value. Many  HOPE for Homeowners proponents believe most lenders will be happy to get these bad loans off their books.

Steve Preston, Secretary of the Department of Housing and Urban Development called the initiative a “helpful step forward” but added that “it must be part of a larger vision for the future, a vision that will help Americans keep their homes and remain financially secure.”

Borrowers interested in participating in the FHA program can contact their lenders, speak with a HUD counselor, or call 1-888-995-HOPE.