U.S. mortgage applications last week sank to their lowest level in over four years, as home purchase loan demand tumbled for the third straight week, an industry trade group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity for the week ended July 28 decreased 1.2 percent to 527.6, its lowest since May 2002, from the previous week's 533.8.

It was the third straight week that overall mortgage activity slumped, despite a decline in interest rates during that period.

Last week, borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.62 percent, down 0.07 percentage point from the previous week, and 0.19 percentage points lower than the 6.81 percent rate in the first week of July.

The MBA's seasonally adjusted purchase index fell 3.3 percent to 376.2, its lowest since November 2003.

The purchase index, widely considered a timely gauge of U.S. home sales, is standing well below its year-ago level of 494.5.

The group's seasonally adjusted index of refinancing applications increased 2.3 percent to 1,417.2. A year earlier the index stood at 2,250.3.

The refinance share of applications increased to 37.0 percent from 35.6 percent the previous week.

Fixed 15-year mortgage rates averaged 6.28 percent, down from 6.31 percent the previous week. Rates on one-year adjustable-rate mortgages (ARMs) decreased to 6.18 percent from 6.25 percent.

ADJUSTABLE SHARE AT 2-YEAR LOW

The ARM share of activity fell to 27.8 percent of total applications -- its lowest since March 2004, from 28.6 percent in the prior week.

After historically low mortgage rates fueled a five-year housing boom, most analysts agree that the market is cooling off from its record run.

Nearly all recent measures of housing activity have pointed not just to a slowdown, but to a sector that is struggling. Sales are sliding, supply is swelling and price appreciation is abating.

The MBA's survey covers about 50 percent of all U.S. retail residential mortgage loans. Respondents include mortgage bankers, commercial banks and thrifts.

Mortgage U.S.