Mortgage applications fall to lowest in a year

By Lynn Adler

NEW YORK (Reuters) - U.S. mortgage applications sank last week to the lowest level since the end of last year despite falling borrowing costs, an industry trade group said on Thursday.

The Mortgage Bankers Association's seasonally adjusted mortgage application index fell 7.6 percent in the week ended December 21 to 603.8 -- its lowest reading since falling to 575.6 in the December 29, 2006 week.

The MBA's weekly indexes have been exaggerated on the high side much of the year. Borrowers facing stricter loan standards often apply numerous times in search of getting one request approved.

The applications slump this week and last, however, appears to more closely reflect the status of ailing housing sales.

Even after the two-week plunge which followed a steep increase in the last week of November, applications are just slightly weaker over the past month when accounting for volatility, notes Michelle Meyer, economist at Lehman Brothers.

"I wouldn't look at the levels per se because they don't correlate well with home sales," she said. "I would say the housing shock is about half-way over, I think we still have a big correction ahead of us."

Demand for both home purchase and refinancing applications dropped last week, as they did the prior week, when total loan requests slid 19.5 percent while interest rates climbed.

Loan requests for home purchases in the latest week dropped 6.6 percent to 394.5, a low since mid-February, according to the trade group.