A big drop in applications for refinancing dragged the Mortgage Bankers Associations Market Composite Index, a measure of mortgage applications volume, lower during the week ended May 17.  The index was down 9.8 percent on a seasonally adjusted basis compared to the week ended May 10 and was down 10 percent on an unadjusted basis.

Refinancing, as measured by MBA's Refinance Index, was down 12 percent from the previous week and the refinance share of mortgage activity decreased to 74 percent of total applications from 76 percent.  Applications for refinancing through HARP increased from 30 percent of all refinancing applications to 32 percent.

Applications for purchase mortgages also declined and the seasonally adjusted Purchase Index was 3 percent lower than a week earlier.  The unadjusted index was down 4 percent from the previous week but was still 10 percent higher than during the same period in 2012. 

"Mortgage rates increased to their highest level since March last week, leading to the largest single week drop in refinance applications this year," said Mike Fratantoni, MBA's Vice President of Research and Economics.   "The refinance index has fallen almost 19 percent over the past two weeks and is back to its lowest level since late March.  Purchase activity declined over the week but is still running about 10 percent above last year's pace at this time."

Both contract and effective interest rates rose for every loan type tracked by MBA in its Weekly Applications Survey.  The average contract rate for 30-year fixed-rate mortgages (FRM) with conforming loan balances ($417,500 or less) increased to 3.78 percent from 3.67 percent, with points decreasing to 0.39 from 0.41.  The jumbo 30-year FRM (mortgage balances greater than $417,500) increased by six basis points to 3.93 percent with points increasing to 0.36 from 0.25.

Rates for 30-year FRM backed by the FHA increased from 3.43 percent with 0.16 point to 3.53 percent with 0.13 point.  The average contract rate for 15-year fixed-rate mortgages increased to 2.96 percent from 2.88 percent, with points increasing to 0.32 from 0.31.

The ARM share of application activity increased during the week to 5 percent of total applications and the rate for the most popular ARM, the 5/1 hybrid, increased to 2.60 percent from 2.55 percent, with points unchanged at 0.23. 

 MBA's weekly survey, which has been conducted since 1990, covers over 75 percent of all U.S. retail residential mortgage applications.  Survey respondents include mortgage bankers, commercial banks and thrifts.  Interest rate information is for loans with an 80 percent loan-to-value ratio and points include the origination fee.  Base period and value for all indexes is March 16, 1990=100.