Mortgage application volume decreased 2.0% on a seasonally adjusted basis last week from one week earlier, but applications for purchase mortgages rose, the Mortgage Bankers Association reported Wednesday. The MBA's unadjusted Market Composite Index dropped 1.5%.

The drop was driven by a 6.2% decline in the Refinance Index, which fell to its lowest level since February 25, on a seasonally adjusted basis. The seasonally adjusted Purchase Index increased 6.7% to its highest level of the year, and the Government Purchase Index increased 10.3% to its highest level since May 7, 2010, also on a seasonally adjusted basis. Unadjusted, the Purchase Index increased 7.0% and was still 16.8% lower than the same week last year.

"Purchase application volume increased last week reaching the highest level of the year, but remains relatively low by historical standards, at levels last seen in 1997," said Michael Fratantoni, MBA's vp research and economics. "The increase last week was due to a sharp increase in applications for government loans. Borrowers were likely motivated to apply before a scheduled increase in FHA insurance premiums."

He continued, "Rates were flat last week, but refinance activity fell, as the pool of borrowers who have both the incentive and the ability to qualify for a refinance continues to shrink."

The four week moving average for the seasonally adjusted Market Index is down 1.9%. The four week moving average is up 0.9% for the seasonally adjusted Purchase Index, the average for the Refinance Index is down 3.2%.

The refinance share of mortgage activity decreased to 61.2% from 64.3%, the lowest since May 7, 2010. The adjustable-rate mortgage (ARM) share increased to 6.1% from 5.7%.

The average contract interest rate for 30-year fixed-rate mortgages increased to 4.93% from 4.92%, with points decreasing to 0.70 from 0.83. The rate for 15-year fixed-rate mortgages decreased to 4.14% from 4.16%, with points increasing to 1.09 from 0.99.