width=319U.S. mortgage applications fell for a second straight week, with demand for home loan refinancing sinking to its lowest level in a month as interest rates jumped, data from an industry group showed on Wednesday.

Demand for purchase loans, a tentative early indicator of home sales, edged higher, but activity was down from a year earlier, further evidence that the housing market has hit a lull after showing signs of a recovery late last year.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended March 19, decreased 4.2 percent.

The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 1.9 percent.

Harsh winter weather has taken a hefty toll on home sales, while stricter lending standards, higher fees, and declining incomes have made it tougher on borrowers.

Michael Moskowitz, president of Equity Now, a direct lender based in New York that does business in nine states, said unemployment and underemployment are also weighing on sales.

There is a lot of nervousness right now and people are uncertain about their financial future, he said. If you do not have a job, looking to buy a home is not high on your priority list.

Another huge obstacle is that many mortgages are underwater, he said. Negative equity, when the amount owed on a mortgage exceeds the current value of the home, has been one of the biggest banes of homeowners, making many unqualified for home loan refinancing and preventing some from selling.

The MBA's seasonally adjusted purchase index increased 2.7 percent, while its seasonally adjusted index of refinancing applications decreased 7.1 percent, reaching its lowest level since the week ended February 19.

The MBA said borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.01 percent, up 0.10 percentage point from the previous week. Interest rates were also above the year-ago level of 4.63 percent.

An all-time low of 4.61 percent was set in the week ended March 27, 2009, based on a weekly survey conducted since 1990.

The MBA said fixed 15-year mortgage rates averaged 4.33 percent, up from 4.24 percent the previous week. Rates on one-year ARMs were unchanged at 6.75 percent.

The lowest mortgage rates in decades and high affordability helped the hard-hit U.S. housing market find some footing in 2009 after a three-year slump. Late last year, home sales were strong as consumers came out in droves to take advantage of the federal government's first-time home buyer tax credit, which was originally set to end November 30.

The Obama administration extended the $8,000 first-time home buyer tax credit, added a $6,500 credit for home owners buying a new residence, and increased income limits. Eligible borrowers must sign contracts by April 30 and close loans by June 30.

Recent data on new and existing home sales indicate the incentive may have played out. The National Association of Realtors on Tuesday said sales of previously owned U.S. homes fell for a third straight month in February.

More key insight into the state of the U.S. housing market will emerge on Wednesday when the Commerce Department releases February new home sales data.

(Editing by Leslie Adler)