Mortgage applications in the U.S. rose 2.4 percent last week, led by gains in refinancing.

The Mortgage Bankers Association’s index of applications to buy a home or refinance a loan rose to 673.2 from 657.4 the prior week. The group’s purchase index rose 0.9 percent and its refinancing gauge increased 4.6 percent.

Rising applications haven’t altered most economists’ view that the two-year housing slump will linger as foreclosures rise and tougher lending standards make borrowing more difficult. The credit meltdown “has the potential to intensify the housing correction, and to restrain economic growth more generally,” the Federal Reserve said yesterday after cutting interest rates.

“Housing activity remains very weak, with prospects inhibited by tighter financial conditions,” Peter Kretzmer, senior economist at Banc of America Securities LLC in New York, said before the report.

The mortgage bankers’ purchase index rose to 452 last week from 448 the prior week. The refinancing index increased to 1962 from 1876.6.

Most economists agree the applications report overstates activity because the survey only includes retail lenders, which have probably seen an increase in business as many wholesale brokers closed their doors.

The average rate on a 30-year fixed loan rose to 6.29 percent last week from 6.25 percent. At that rate, monthly borrowing costs for each $100,000 of a loan would be about $618.32.

The average rate on a 15-year fixed mortgage rose to 5.99 percent from 5.90 percent, while the rate on a one-year adjustable mortgage increased to 6.39 percent from 6.34 percent.

Applications to refinance loans made up 43.5 percent of the total, up from 42.1 percent the prior week, the bankers said. The group’s fixed-rate mortgage index rose 3.1 percent, and its measure of adjustable-rate mortgages fell 1.9 percent.

The Fed yesterday lowered its benchmark interest rate by a half point, the first cut in four years, on concern the housing recession would weaken the broader economy. The government said Sept. 7 that employers cut 4,000 workers from payrolls last month, while August figures for retail sales and industrial production were below economists’ forecasts.

“Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets,” the Fed’s Open Market Committee said in a statement after meeting in Washington.

The number of Americans who may lose their homes to foreclosure more than doubled in August from a year earlier, according to a report yesterday by RealtyTrac Inc.

Foreclosures to Rise

Defaults on subprime mortgages, given to those with limited or tarnished credit histories, will continue driving up foreclosures through 2009, said Rick Sharga, executive vice president of marketing for RealtyTrac in Irvine, California.

A rise in the number of unsold homes is weighing on house prices, keeping many people on the sidelines as they await further declines, economists said.

Buyers are “hesitant to purchase,” Ara Hovnanian, chief executive officer of Red Bank, New Jersey-based Hovnanian Enterprises Inc., said yesterday at a in New York. The company said it sold 2,100 homes from Sept. 14 to 16 in a promotion aimed at reducing excess inventories.

Mark Zandi, chief economist at Moody’s Economy.com, said at the same conference that problems in the housing market are “very deep,” and projected the housing slump will continue through next year.

The Fed’s rate cut sparked a rally in shares of homebuilders as investors speculated the reduction would help rejuvenate housing demand. The Standard & Poor’s Supercomposite Homebuilders Index, made up of the stocks of 16 builders, rose 5.9 percent yesterday. The gauge has fallen 44 percent this year.

The Washington-based Mortgage Bankers Association’s loan survey, compiled every week since 1990, covers about half of all U.S. retail residential mortgage originations.

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