After two weeks of increases, the volume of mortgage applications declined for the week ending August 17, the Mortgage Bankers Association announced today.

In releasing its Weekly Mortgage Application Survey, the MBA said that the Market Composite Index, which measures loan application volume, decreased 5.5 percent to a seasonally-adjusted 641.1, down from 678.7 a week earlier.

The seasonally adjusted Purchase Index decreased 5.0 percent to 441.5 from 464.9 a week earlier. The Refinance Index decreased 6.4% from 1929.6 to 1806.3.

Due to the turmoil in the mortgage market, with lenders going out of business, standards tightening, and demand for home purchases flagging, week-to-week fluctuations in the purchase applications index should be viewed with some measure of caution, says MBA vice president of research and economics Jay Brinkmann.

"The sudden exit of a major originator several weeks ago may have led to a bump up in applications over the last two weeks as those borrowers caught in the shutdown reapplied for mortgages at other institutions," Brinkmann says in a MBA statement announcing this week's mortgage survey results. "The drop in applications we see here may be an indication that those borrowers have now been taken care of."

The four-week moving average for the seasonally adjusted Market Index, which is less affected by weekly fluctuations, rose 1.3 percent to 645.8 from 637.8. The four-week moving average for the Purchase Index increased 1.0 percent, and the four-week moving average for the Refinance Index is up 1.6 percent.

The refinance share of mortgage activity remained unchanged at 39.9 percent of total applications, the MBA says.

As borrowers move away from adjustable rate mortgages and into more stable fixed-rate mortgage products (something several builders announced that they were seeing during their most recent round of earnings conference calls), the ARM share of total mortgage applications decreased to 18.6 percent from 21.0 percent the previous week, the MBA says.

Interest rates were also on the rise last week. The average contract rate for a 30-year fixed rate mortgage increased to 6.49 percent from 6.45 percent. The average contract rate for a one-year ARM increased to 5.84 percent from 5.81 percent.