Aug. 6 (Bloomberg) -- Mortgage applications in the U.S. climbed last week from a seven-year low as more Americans sought to refinance out of adjustable-rate loans.

The Mortgage Bankers Association's index of applications to buy a home or refinance a loan rose 2.8 percent to 432.6 in the week ended Aug. 1 from the prior week, when it reached the lowest level since December 2000. The group's refinancing gauge also improved from a seven-year low.

Potential home-buyers are holding out for deeper price declines as the biggest housing recession in a quarter century moves toward a third year. Rising lending rates and credit restrictions are further discouraging would-be purchasers, signaling no relief in sight for the housing market.

``Home loans are tougher to get for some borrowers and more expensive for others,'' Michael Larson, analyst at Weiss Research in Jupiter, Florida, said before the report. ``I expect sales to remain subdued and prices to slump, albeit at a more gradual pace.''

The group's refinancing gauge increased 4.4 percent to 1121.4 from 1074.4. The purchase index improved 1.8 percent to 315.2 from 309.5 the prior week, when it reached the lowest level since February 2003.

The share of applicants seeking refinancing rose to 35.9 from 35.2 percent the prior week.

The average rate on a 30-year fixed loan dropped to 6.41 last week from 6.46 percent, today's report showed. The rate reached a one-year high of 6.58 percent a week earlier.

Monthly Costs

At the current rate, monthly borrowing costs for each $100,000 of a loan would be $626, up $58 from the low this year reached in January.

The average rate on a 15-year fixed mortgage increased to 6.02 percent from 5.98 percent. The rate on a one-year adjustable loan dropped to 7.17 compared with a seven-year high of 7.25 percent a week earlier.

Applicants seeking fixed-rate financing climbed 3.3 percent last week, while demand for adjustable-rate loans fell 2.9 percent to the lowest level since records began in June 2007.

U.S. homeowners who defaulted in June outnumbered those who caught up on payments, according to a report last week from the Mortgage Insurance Companies of America. The figures signaled the housing recession deepened even as Bank of America Corp., Wells Fargo & Co. and other lenders sought to help borrowers.

Home prices in 20 U.S. metropolitan areas in May were 16 percent below year-earlier levels, according to the S&P/Case- Shiller home-price index.

Foreclosure Bill

To stem the losses, President George W. Bush signed into law last week a bill aimed at helping 400,000 homeowners facing foreclosure. The measure provides federal insurance for refinanced 30-year mortgages for homeowners struggling to make monthly payments and allows the government to inject capital into Fannie Mae and Freddie Mac, the two largest home finance companies.

Homebuilders are suffering from mounting losses. D.R. Horton Inc., the largest U.S. homebuilder, yesterday reported its fifth straight quarterly loss as the Fort Worth, Texas-based company recorded $330.4 million in pretax expenses to write down the value of property and walk away from planned land purchases.

``We're continuing to cut at all levels,'' Chief Executive Officer Donald Tomnitz said during a conference call.

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: August 6, 2008 07:00 EDT