Sept. 12 (Bloomberg) -- Mortgage applications in the U.S. rose 5.5 percent last week, reflecting gains in both purchases and refinancing.

The Mortgage Bankers Association's index of applications to buy a home or refinance a loan rose to 657.4 from 622.9 the prior week. The group's purchase index rose 5.2 percent and its refinancing gauge rose 6 percent.

The two-year housing recession is likely to deepen as stricter lending rules make it harder and more expensive to get loans or refinance. Some economists say the applications report overstates activity because the survey only includes retail lenders, which have probably seen an increase in business as many wholesale brokers closed their doors.

``The survey overstates activity,'' said Michelle Meyer, an economist at Lehman Brothers Holdings Inc. in New York. ``We discount the MBA survey and continue to look for home sales to fall through next year.''

Home sales are down 12 percent since February while mortgage purchase applications in August were up 11 percent from February's average.

The mortgage bankers' purchase index rose to 448 last week from 425.8 the prior week. The refinancing index increased to 1876.6 from 1770.2.

The housing slump will linger longer than previously forecast, most economists and housing professionals now say. Federal Reserve policymakers, who last month warned that ``tighter credit'' may restrain growth, are forecast to cut their benchmark lending rate next week for the first time since 2003 to head off a recession.

Pending Sales

In the latest report to point to more gloom, the number of Americans signing contracts to buy previously owned homes plunged 12 percent in July, the most since records began in 2001, the National Association of Realtors said Sept. 5.

The Realtors group yesterday said the housing slump would extend into 2008, while Moody's Investors Service said a day earlier that the slump might last into 2009.

The Realtors group reduced its sales forecast for the ninth time this year and said existing home sales will fall 8.6 percent in 2007 and new-home sales probably will decline 24 percent this year. The group forecast the median resales price would decline 1.7 percent this year, the first national decrease in more than five decades.

The average rate on a 30-year fixed loan fell to 6.25 percent last week, the lowest in almost four months, from 6.42 percent. At that rate, monthly borrowing costs for each $100,000 of a loan would be about $615.72.

One-Year Rate

The average rate on a one-year adjustable mortgage fell to 6.34 percent, the first decline in five weeks, from 6.52 percent the prior week. The average rate on a 15-year fixed mortgage fell to 5.90 percent from 6.10 percent.

Applications to refinance loans made up 42.1 percent of the total, up from 41.4 percent the prior week, the bankers said.

Homebuilders are suffering. Hovnanian Enterprises Inc., New Jersey's biggest homebuilder, on Sept. 7 reported its fourth consecutive quarterly loss and said 35 percent of home orders were canceled.

``The housing market remains very challenging,'' Chief Executive Officer Ara Hovnanian said in a conference call. The housing market has been hurt because ``mortgage underwriting criteria have tightened significantly.''

The Washington-based Mortgage Bankers Association's loan survey, compiled every week since 1990, covers about half of all U.S. retail residential mortgage originations.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

Last Updated: September 12, 2007 08:21 EDT