By Chris Reese
Reuters
Wednesday, July 14, 2004; 12:03 PM

NEW YORK - New applications for U.S. mortgages fell for the week ending July 9, under pressure from lower demand for floating-rate home loans and reduced business activity during a holiday-shortened week, an industry group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted market index, a measure of mortgage activity, fell by 6.3 percent to 643.9 for the week ending July 9 from the previous week's 687.

However, lenders downplayed last week's decline in application activity given the effect of the U.S. Independence Day holiday during which many businesses and the financial markets were closed.

Some lenders have already seen a rebound in loan demand, as prospective borrowers sought to take advantage of the recent decline in mortgage rates.

"We see ebbs and flows during the summer," said Michael Bizenov, President of Sterling National Mortgage in Great Neck, N.Y. "We are shaking off the doldrums of a holiday week."

Housing markets in North Carolina and New York served by Sterling have remained strong, Bizenov said.

The Mortgage Bankers Association's purchase index, a gauge of new loan requests for home purchases, fell last week by 6.4 percent to 468.8 from 500.9 in the prior week.

"The decline doesn't surprise us with the long weekend -- a lot of people took off the Friday before, and were out after the long weekend," said Bob Moulton, president of Americana Mortgage Group in Manhasset, New York.

"In general, business is still very brisk," Moulton said.

REFINANCINGS FALL

The Washington trade group's seasonally adjusted refinancing index fell by 6.1 percent to 1,662.4 from the previous week's 1,769.7 despite a drop in mortgage rates.

Thirty-year mortgage rates, excluding fees, averaged 5.95 percent, down 1 basis point from the previous week's 5.96 percent. The 30-year rate, however, was up 0.62 percentage point from one year ago.

Interest rates on one-year adjustable-rate mortgages (ARM) averaged 3.93 percent, up 0.03 percentage point from the prior week. The one-year ARM rate was up 0.83 percentage point from the same time last year.

The group's barometer of ARM applications fell 13.4 percent to 4,451.9 last week from 5,138.8 in the prior week.

A recent rally in the Treasuries market has pushed down interest rates, and potential new buyers turned their focus to fixed-rate mortgages from ARMs, Americana's Moulton said.

"It sort of correlates with the rally in the bond market, it makes it harder to justify the risk of the adjustable (rate)," Moulton said, adding however that "you'll see the ARMs come back" as the Federal Reserve bank continues to raise interest rates.

The share of new ARM applications filed last week was 31.5 percent, down from the prior week's 34.1 percent. (Additional reporting by Richard Leong)