Applications for home purchase and refinance loans declined last week even as long-term interest rates dropped, the Mortgage Bankers Association reported today.

The market composite index, a measure of total mortgage application volume, last week sank 2.7 percent on a seasonally adjusted basis from the third week in September, according to MBA. Leading the decline was a 3.8 percent drop in the index that tracks new refinance loans, followed by a 1.8 percent dip in the purchase-loan index.

Interest rates on long-term loans were lower last week, while those on adjustable-rate mortgages (ARMs) moved higher, MBA reported. The average contract interest rate on 30-year fixed-rate mortgages fell to 6.32 percent from 6.38 percent; the 15-year fixed rate slipped to an average 5.95 percent from 6.06 percent; and the one-year ARM increased to 6.21 percent from 6.09 percent.

Points, which are loan-processing fees expressed as a percent of the total loan amount, averaged 1.08 on the 30-year loans, 1.07 on the 15-year, and 0.89 on one-year ARMs — down from 1.15, 1.12 and 0.93, respectively, in the previous week. These points include the origination fee and are based on loan-to-value ratios of 80 percent.

According to MBA, the refinance share of total loan applications was down to 46 percent, compared with 46.4 percent during the third week of September. Despite the strong increase in the one-year ARM rate, the adjustable-rate share of applications grew from 12.2 percent to 13.8 percent.

The Mortgage Bankers Association survey covers approximately 50 percent of all U.S. retail residential mortgage originations, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.

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