The 30-year fixed-rate mortgage averaged 6.74%, soaring 21 basis points from its level a week earlier, Freddie Mac’s latest survey of mortgage-lending companies, thrifts and commercial banks showed. The average is also higher than 6.63% at this time a year ago.

The 30-year’s largest upward movement in over three years paralleled rising yields on Treasury securities, “as concerns about inflation pressures and continuing strength of consumer and business spending have dimmed hopes for an interest rate cut,” Freddie Chief Economist Frank Nothaft said in an announcement.

The yield on the benchmark 10-year Treasury, which gyrated up and down this week, closed today at 5.21%, soaring from 5.07% a week earlier.

More than 40% of the 100 mortgage industry “experts” surveyed by Bankrate.com expect rates to rise over the next 35 to 45 days, while another 42% see no changes.

While both the 30-year fixed and the 1-year ARM are currently at the highest levels since late July 2006, Freddie’s latest outlook has the respective averages at 6.5% and 5.5% throughout the second half of the year.

The 15-year averaged 6.43%, also 21 BPS higher than last week, according to the survey.

The upturns were not as large for adjustable-rate mortgages.

The 5-year Treasury-indexed hybrid ARM reportedly moved up 13 BPS from a week earlier to 6.37%, and the 1-year Treasury-indexed ARM increased 10 BPS to 5.75% even though Federal Reserve data showed the 1-year T-bill itself was 4.98% yesterday, 2 BPS higher than a week earlier.

ARMs accounted for 19% of applications reported Wednesday in the Mortgage Bankers Association’s weekly survey.

Mortgage originators completed 6.6% more applications for the week ending June 8 due to a 6% increase in refinance requests and 7% upturn in purchase money demand,
MBA reported.

The share of refinance applications was unchanged from the previous week at 38 percent, MBA said.

However, refinance requests may gain ground as tightening of underwriting guidelines sparked a shift toward more secure mortgages in the first quarter, according to the latest U.S. Mortgage Payment Index by Susan M. Wachter, professor of real estate and finance at the University of Pennsylvania’s Wharton School.

In January, more than 60 percent of all new mortgages were prime. Furthermore, 89 percent of borrowers with 1-year ARMs refinanced into long-term loans in the first quarter and loans with private mortgage insurance spiked — more than 55 percent — in March over February, the index reportedly showed.

“There are still a number of people with bad credit stuck in expensive subprime or risky exotic and piggyback mortgages, which could result in dramatically rising payments at best and foreclosure at worst,” Wachter said in an announcement.

But, the “bottom line is that the mortgage market is self-correcting — consumers are turning away from exotic loans and towards more secure options,” she added.