The MBA's seasonally adjusted Market Composite Index, a measure of weekly application activity based on surveys of trade group members, rose 1.9% for the seven-day period ending May 17. Volumes increased for the third straight survey, after inching up 0.5% one week earlier. Year-over-year, applications came in 1.5% lower.

"Rates coming down from recent highs spurred some borrowers to act, with increases across both conventional and government refinance applications," said Joel Kan, MBA vice president and deputy chief economist, in a press release.

The fixed contract rate for 30-year conforming mortgages, with origination balances eligible for sale to the government-sponsored enterprises, dropped to its lowest point in seven weeks at 7.01% among trade group members, falling 7 basis points from 7.08%. Points used to help buy down the rate declined to 0.6 from 0.63 for 80% loan-to-value ratio applications. 

The latest numbers come in as the association sees continued challenges this year for lenders, with MBA economists revising some of its annual projections slightly downward this week from April's forecast. Recent economic data, though, is leading some in the business community to hold out hope for a cut in rates this year from the Federal Reserve that could spur activity.  

Refinances propelled weekly gains in volume, particularly among government-sponsored loans. The MBA's Refinance Index jumped up 7.4% week over week, and activity also came in 21.2% higher from the same week a year ago. 

Of note, refinances coming from the Department of Veterans Affairs continued its recent surge, up 31.8% from the previous week, "although the current level of refinancing is still well below its historical average," Kan said. The Government Refinance Index came in 16.1% higher, while conventional lending rose 3.3%.

The seasonally adjusted Purchase Index, on the other hand, lost some steam, down 1.2% from seven days earlier, its second straight weekly drop. Compared to year-ago levels, activity was also 11.6% lower. 

"Purchase activity continues to lag despite this recent decline in rates," Kan said, noting pressure coming from low inventory, which keeps prices elevated.

As a result, refinances increased to 34% of all new loan applications last week, compared to 66% for purchases. A week earlier the ratio stood at 32% to 68%. 

The share of adjustable-rate mortgages, meanwhile, narrowed further to 6.6% from 7% and 7.7% the prior two weeks. Interest in ARMs traditionally moves in the same direction as movements in fixed rates.

Largely thanks to the current heightened pace of refinances, federally sponsored lending activity saw the size of its share grow relative to overall activity. Federal Housing Administration-backed mortgages accounted for 12.8% of all new applications, rising from 12.4% week over week, while VA-guaranteed mortgages saw its share grow to 13.7% from 12.7%. But U.S. Department of Agriculture activity garnered a smaller slice of 0.3%, falling from 0.4% the prior week.

Mortgage rates fell across the board in tandem with the conforming average. The mean fixed-contract rate for 30-year jumbo loans with balances above conforming limits slid down 4 basis points to 7.18% from 7.22% in the previous survey. Borrower points also decreased to 0.44 from 0.58 for 80% LTV-ratio loans.