NEW YORK - U.S. mortgage applications fell for the first time in four weeks, reflecting a dramatic drop in demand for home refinancing loans, data from an industry group showed on Wednesday.

Demand for loans to purchase a home also fell, albeit on a smaller scale. Nevertheless, a continuation of this trend would not bode well for the U.S. housing market, which remains highly vulnerable to setbacks and reliant on government intervention.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications USMGM=ECI, which includes both purchase and refinance loans, for the week ended Jan. 22 decreased 10.9 percent to 513.0.

The four-week moving average of mortgage applications, which smoothes the volatile weekly figures, was up 2.6 percent.

The MBA's seasonally adjusted purchase index USMGPI=ECI, a tentative early indicator of home sales, fell 3.3 percent to 215.6.

Refinance activity fell substantially last week, Michael Fratantoni, the MBA's vice president of research and economics, said in a statement.

Indeed, the seasonally adjusted index of refinancing applications USMGR=ECI decreased 15.1 percent to 2,260.4.

Although rates remain low, there appears to be a smaller pool of borrowers who are willing and able to refinance at today's rates, he said.

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.

The MBA said borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.02 percent, up 0.02 of a percentage point from the previous week. An all-time low of 4.61 percent was set in the week ended March 27, 2009. The survey has been conducted weekly since 1990.

Interest rates were also below the year-ago level of 5.22 percent.

Interest rates are expected to rise when the Federal Reserve stops buying mortgage-related securities at the end of March. The Fed's agency MBS and agency debt purchase programs, aimed at lowering borrowing costs, will have reached more than $1.4 trillion.

The refinance share of mortgage activity decreased to 67.6 percent of total applications from 71.7 percent the previous week. The adjustable-rate mortgage, or ARM, share of activity increased t0 4.7 percent from 4.1 percent the previous week.

The MBA said fixed 15-year mortgage rates averaged 4.34 percent, up from 4.33 percent the previous week. Rates on one-year ARMs increased to 6.84 percent from 6.72 percent.

(Editing by Andrew Hay)

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