NEW YORK, N.Y. ( TheStreet) -- Mortgage applications fell last week as mortgage rates increased for the first time in six weeks.

The volume of mortgage loan applications fell 10.5% on a seasonally adjusted basis in the week ending Oct. 15, the Mortgage Bankers Association said Wednesday.

Refinancing applications fell 11.2% from the previous week, the sixth time in the past seven weeks that refi applications decreased. New-home purchase loan applications decreased by 6.7% from the prior week and were 29.4% lower than in the year-earlier week.

A total of 82.4% of all loan applications last week were for refinancing existing mortgages, down from 83.1% in the prior week. The prior week's refi percentage was the highest refinance share since January 2009.

One big reason for the decline in mortgage applications was that the average rate on a 30-year fixed mortgage rose for the first time in six weeks, to 4.34%. Last week's 30-year contract rate of 4.21% was the lowest recorded in the survey.

Record-low and near-record-low mortgage rates failed to spark robust demand for housing in recent months, but continue to have an effect on homeowners looking to lower their monthly payments through refinancing.

Still, the drop in mortgage demand is not a good sign for the still-struggling housing market. Waning demand has been due in part to the tight credit market and inability of many potential buyers to access the credit they need to finance a mortgage.

"Tight lending standards are preventing many homeowners from home loan refinancing," Mark Vitner, senior economist at Wells Fargo Securities, told Reuters. "Low credit scores and high unemployment are also playing a big role."

Many Americans suffer from negative equity, where the amount they owe on their home is higher than the value of it, making them unqualified for refinancing.

Alan Rosenbaum, president of Guardhill Financial, a New York-based mortgage banker and brokerage company, told the newswire recently that "many homeowners are waiting for the elections next month hoping that more certainty about taxes, bank regulations and other factors will give Americans confidence to move forward with important monetary decisions."

"The lower interest rates on mortgages have spurred refinancing and purchase activity, though not currently as much as hoped for," he said, adding that "the government states that they want to keep rates low so that homeowners will buy and refinance to spur the economy, but they continue to keep underwriting guidelines too strict for most Americans to qualify for a mortgage."

Still, all is not lost for the housing market.

On Tuesday the Commerce Department reported that homebuilders began construction on 0.3% more homes in September, a better-than-expected expansion and a five-month high. It also represents a 4.1% increase over year-earlier results. The figure compares with a revised pace of 608,000 reported for August.

>> Housing Starts Rise in September

While the housing starts numbers were certainly encouraging, the same government report showed that applications for building permits fell 5.6% last month,, compared with a month-earlier report of 571,000, pointing to a decrease in future homebuilding activity. September's rate of building permits was the lowest since April 2009, and 11% lower than year-earlier results

Building permits are viewed as an indication of future home construction.

The U.S. housing market has been under tremendous pressure for some time. Demand fell further after the expiration of federal tax credits for homebuyers earlier this year.

"The worst of the housing market downturn may be behind us, but the path to recovery is likely to be long and slow," Russell Price, a senior economist at Ameriprise Financial, told Bloomberg.

Stocks in the homebuilder sector were mixed on Wednesday even as the major indexes pushed sharply higher.

The SPDR S&P Homebuilders ( XHB - Get Report), an exchange-traded fund that tracks the sector, was 0.7% higher, while the iShares Dow Jones US Home Construction ( ITB - Get Report) ETF was 0.3% lower.

Among individual builders, PulteGroup ( PHM - Get Report), Lennar ( LEN - Get Report), KB Home ( KBH - Get Report) and Standard Pacific ( SPF) were all in negative territory. NVR ( NVR - Get Report), Brookfield Homes ( BHS) and Hovnanian Enterprises ( HOV - Get Report) traded higher.

>> Homebuilder Stocks: Winners & Losers

On Monday, the National Association of Home Builders reported that its index of builder sentiment, , which measures builder perceptions of current single-family home sales and sales expectations for the next six months, came in higher than expected, jumping three points to a reading of 16 in October, surprising industry watchers who expected the index to come in flat at 13. The index's components include current sales conditions, sales expectations and traffic of prospective buyers -- all of which rose in October.

>> Homebuilder Sentiment Jumps in October

While it was the index's first improvement in five months, returning the reading to levels last seen in June of 2009, results still pointed to weak sentiment among homebuilders. Any reading below 50 indicates poor sentiment. The index has not been above 50 since April 2006.

"Builders are starting to see some flickers of interest among potential buyers, and are hopeful that this interest will translate to more sales in the coming months," said NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Mich. "However, because most builders still have no access to credit for building homes, there is a real concern that we will not be able to meet the pent-up demand when consumers are ready to get back in the market. This problem threatens to severely slow the housing and economic recovery."

Just as the subprime mortgage troubles expanded into a total housing market downfall, the latest scandal in the home loan industry is expanding into a nationwide political firing line aimed -- once again -- toward the banks due to problems with foreclosure filings.

Stifel Nicolaus analyst Chris Mutascio noted last week that while the call for a nationwide foreclosure moratorium is "growing in seemingly every political circle in recent days," it is undecided if the banks should take full blame.

"Is this just political rhetoric from politicians once again blaming the banks for all the ills upon us or are there some merits to it? We are not sure we really know the answer to that question yet, but let's keep one thing in mind during the debate. If there is any way a bank can keep a borrower in his/her home, it behooves the bank to do so from an economic perspective, in our view," the Stifel note said.

-- Written by Miriam Marcus Reimer in New York.

>To contact the writer of this article, click here: Miriam Reimer.

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