There was another substantial drop in mortgage applications during the week ended May 31 as rates increased, in some cases to 13 month highs. The Mortgage Bankers Association (MBA) said results of its Weekly Mortgage Applications Survey showed an 11.5 percent decrease in its Market Composite Index, a measure of mortgage volume, on a seasonally adjusted basis from the week ended May 24. The Composite was down 20 percent on a non seasonally adjusted basis.

The Refinance Index decreased 15 percent from the previous week and is at its lowest level since the end of November 2011.  The refinancing share of mortgage applications dropped from 71 percent the previous week to 68 percent, the smallest share since early July 2011 and the fourth straight week it has declined. Refinancing through the Home Affordable Refinancing Program (HARP) held its ground with a 32 percent share of refinancing - a percentage that has not changed for three weeks.

The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index was down 13 percent compared with the previous week and was 14 percent higher than the same week one year ago.

Rates for the conforming 30-year fixed-rate mortgage (FRM) had the biggest single-week increase since July 2011, jumping from 3.90 percent to 4.07 percent, the highest rate since April 2012. Points decreased to 0.35 from 0.39.

The average rate for 30-year jumbo FRMs (loan balances greater than $417,500) increased by 13 basis points to 4.20 percent, the highest rate since May 2012. Points increased to 0.28 from 0.27.

FHA-backed 30-year FRMs also increased to the highest level since May 2012, 3.76 percent, from 3.62 percent the previous week. Points increased to 0.32 from 0.27.  The rate for 15-year FRMs reached the highest level since June 2012, increasing to 3.23 percent with 0.38 point from 3.10 percent with 0.30 point.

The average contract interest rate for 5/1 adjustable rate mortgages (ARMs) increased to 2.76 percent, the highest rate since June 2012, from 2.60 percent, with points increasing to 0.41 from 0.24. The share of ARM activity increased to 6 percent of total applications.

Rates quoted are for loans with an 80 percent loan-to-value ratio and points include the origination fee. The effective mortgage rate also increased for all of the loan types listed above.

MBA's survey covers over 75 percent of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990.  Respondents include mortgage bankers, commercial banks and thrifts.  Base period and value for all indexes is March 16, 1990=100.