The demand for home loans nationwide increased last week as mortgage rates for 30-year fixed loans dropped to their lowest level in the past three weeks and as the number of loan refinancing applications increased.

According to the Mortgage Bankers Association, the average rate for 30-year fixed loans dropped to 5.17 percent, a drop of 0.19 percentage point and the lowest rate level since the week ended July 10.

The decline in mortgage rates also drove loan refinancing applications to 1,996.7 last week, an increase of 7.2 percent. The rise in loan refinancing also pushed up by 4.4 percent the MBA seasonally adjusted index to 517.3.

However, despite the 35-percent rise in loan refinancings last week from their lowest level in June, the MBA adjusted index is still much below the 6,000 index surpassed for 5 weeks in March when 30-year fixed loan rates fell steeply to their lowest level of 4.61 percent.

Meanwhile, the number of home purchase loans increased only slightly by 0.9 percent to 264.4.

Mortgage analysts contend that despite reports of home price increases and home sales increases that could indicate the housing market is bottoming out and on its way to recovery, the market is still facing various obstacles to enable a stepped-up recovery.

Jonathan Corr, chief strategist at California-based home loan software developer Ellie Mae, said the market is slowly starting to be alive, but it would be a long and slow recovery.

In recent weeks, news of increases in existing-home sales, new-home sales and in pending home sales dominated news media and they prompted renewed hope in market recovery. Even several markets announced declines in the number of properties in repo house listings.

The number of contracts to purchase homes increased for the fifth straight month in June, based on nationwide real estate sales data.

Additionally, sales of both existing homes and new homes increased for the third consecutive month, as home buyers were enticed by lower mortgage rates, lower-priced homes and tax credits from the federal and state governments.

In May, home prices increased for the first time in 3 years and the adjusted annual rate of home price decline slowed down for the fourth consecutive month, according to the Standard & Poor’s/Case-Shiller index.

All in all, analysts are encouraged by the recovery in home price levels, but they are concerned about the effects of unemployment on the housing market and on the expected resurgence of foreclosures due to Alt-A mortgage loans.

The number of New York homes to enter repo homes lists in the coming months is expected to increase significantly, according to the U.S. Government Accountability Office.

GAO based its prediction on the number of subprime loans taken out in New York during the housing peak and the number of loans approved even with incomplete documentation.

According to GAO, as of March 31 this year, a total of 53,000 borrowers in New York who took out low-documentation or subprime loans have already defaulted on their loans. This number is also on top of the 33,000 low-documentation or subprime borrowers who have already lost their houses to repo homes lists.

In the spring, the foreclosure process has already begun for 28,000 homes purchased with low-documentation loans or subprime loans.

The New York foreclosure data is part of a nationwide study of non-prime home loans being undertaken by GAO for Congress.

Initial results from the nationwide study showed how mortgage lenders violated standard loan underwriting policies just to be able to increase their loan volumes and profits during the boom.

According to the GAO study, out of the 14.4 million homes purchased across the country from 2000 to 2007 by borrowers who took out loans with deficient financial documentation, 1.6 million homes have already entered repo homes lists as of March 31 and another 600,000 are already being processed for foreclosure. Another 1.3 million are already in default by several months.

Compared to other states, like the foreclosure-battered states of Florida and California, New York’s foreclosure problem is lighter.

In Florida, which is the fourth-largest state based on population, the percentage of low-documentation and subprime mortgages which are already being processed for foreclosure is 6 times higher than the percentage in New York.

But for New York homeowners directly affected by repo homes lists, the higher foreclosure rates of other states are not comforting.

The eastern portion of New York City, particularly the area covered by the 6th and 10th Congressional Districts, is expected to suffer more foreclosures in the coming months, as 35 percent of all homeowners who took out low-documentation or subprime loans are already seriously delinquent.

As a result, New York residents are finding it difficult to sell their houses to prevent them from getting into repo homes lists and to prevent their credit records from getting damaged.