Mortgage rates shot up this week with 30-year mortgages climbing to the highest level in nearly a year, reflecting concerns in financial markets about the troubles at corporate giants Fannie Mae and Freddie Mac.

Freddie Mac reported Thursday that its nationwide survey showed rates on 30-year mortgages surged to 6.63 percent this week, up sharply from 6.26 percent last week. That represented the highest level for 30-year mortgages since they stood at 6.68 percent the week of Aug. 1.

Other mortgage rates showed similar hefty increases which analysts attributed to financial market jitters over rising mortgage losses at Fannie and Freddie.

Analysts said that the rising cost of funds for Fannie and Freddie had an immediate impact on the nationwide average for all mortgage rates since both companies are such big players. Fannie and Freddie either own or guarantee nearly half of the nation's mortgages.

The House on Wednesday approved and sent to the Senate legislation that would expand the government's powers to provide billions of dollars in loans and make direct purchases of Fannie and Freddie stock if necessary to shore up finances at the companies.

Supporters said the legislation, which also seeks to address a rising tide of mortgage foreclosures, should help arrest the worst slump in housing in a generation. President Bush has promised to sign it.

Mark Zandi, chief economist at Moody's Economy.com, predicted that the legislation would have an immediate impact in helping to bring mortgage rates back down as investors become more assured that the federal government will step in if necessary to prevent a meltdown at Fannie and Freddie.

"The big rise in rates reflected the financial problems at Fannie and Freddie. We should see those rates come back down, but if they stay up, that would be a real problem for the housing industry," Zandi said.

Brian Bethune, senior economist at Global Insight, attributed part of the rise in mortgage rates this week to some Fed comments that once again spooked investors into worrying about when the central bank might start raising interest rates to fight inflation pressures.

Charles Plosser, president of the Fed's Philadelphia regional bank, said in a speech Tuesday that the Fed will probably need to boost interest rates "sooner rather than later" to battle inflation even if employment and financial conditions have not revived.

According to the Freddie Mac survey, the nationwide average for other mortgage rates also showed big increases this week. Continued...