Mortgage applications bounced last week as distressed mortgage sales appear to have driven much of an increase in applications, with the Mortgage Bankers Association reporting Thursday morning that its composite index of refinance and purchase application volume rose 11.9 percent on a seasonally-adjusted basis to 425.0 for the week ended Nov. 7. The MBA’s index is set against the week of March 16, 1990, meaning that applications last week were 4.25 times greater than the week the index began. While the MBA did not comment specifically on the reasons behind the jump in applications, most market participants suggested that the reason was a jump in REO activity; a drop in mortgage rates also likely drove a jump in refis, as well. The MBA reported that refinancing applications rose 16.1 percent week-over-week (seasonally-adjusted), while purchase apps rose 9.0 percent; FHA applications jumped 15.1 percent, underscoring the continuing strong interest in federally-insured mortgages. While purchase applications gained, it worth noting that applications to purchase a home still remain 40 percent below year ago levels. Falling home prices and the increasing share of deep-discount foreclosure sales drove the average purchase loan size to $219,000, down from $245,000 at the beginning of 2008, analysts at Barclays Capital noted in commentary Thursday morning. But rising demand for government mortgages has led average purchase loan size in that sector to swell to $179,000 from $160,000 a year ago, they said. A similar rise in application activity was observed in the MAX, an weekly application index reported by Mortgage Maxx LLC; the index strips out multiple applications from th same household, and tends to be relied upon by prepayment researchers looking to forecast forward mortgage demand. The MAX reported a 7.1 percent rise last week, directionally similar to the MBA’s results, although publisher Paul Descloux suggested the jump “should give no comfort” to market participants. “Except for REO activity, organic mortgage originations are a basket case,” he said. “Stripping out REOs, non-stressed mortgage activity appears to be less than half year-ago levels, and is more in keeping with the pace seen at the nadir of the holiday effect.” He warned that an expected drop in REO sales going forward could push applications lower. The MBA reported that purchase applications continue to hold the majority of the market, with refinance share of applications at 45.1 percent last week. Borrowers looking for adjustable-rate mortgages continued to fall, and represented just 2.3 percent of applications. For more information, visit http://www.mortgagebankers.org and http://www.mortgagemaxx.us. Write to Paul Jackson at paul.jackson@housingwire.com.