But analysts warn number is misleading as potential borrowers file multiple applications.

August 15 2007: 7:44 AM EDT

NEW YORK (Reuters) — U.S. mortgage applications rose for the second straight week, driven by growing demand for refinancing and home purchase loans, an industry group said Wednesday.

The Mortgage Bankers Association’s seasonally adjusted mortgage application index rose 3.4 percent in the week ended Aug. 10 to 678.7, its highest level since the middle of May.

The rising applications figures seem to fly in the face of a spate of reports pointing to a crisis of confidence in the mortgage industry.

Dems take on mortgage meltdown

But potential borrowers may be filing multiple applications as more mortgages get rejected, probably distorting the total applications figures, analysts have said.

“Recent upheavals in the mortgage industry may be temporarily increasing the level of retail application activity at the large lenders that participate in the MBA survey rather than representing a system-wide increase,” Doug Duncan, the MBA’s chief economist, said in a statement.

The MBA says its mortgage application survey covers approximately 50 percent of all U.S. retail residential mortgage originations.

Lenders shut doors

Rapidly rising defaults and foreclosures that emanated from the subprime mortgage market have been seeping into higher-quality loans.

Dozens of mortgage lenders have shut their doors and most others have tightened lending standards.

Foreclosures and late payments on home loans serviced by Countrywide Financial Corp. (Charts, Fortune 500), the largest U.S. mortgage lender, rose in July to their highest in at least five years. The company said Tuesday it made 14 percent fewer home loans last month than in June after tightening its lending standards.

On the refinancing side, borrowers continue to take advantage of relatively low loan rates - especially homeowners with adjustable-rate mortgages who opt to switch into fixed-rate mortgages.

Borrowing costs rose across the board last week, with 30-year loan rates up 0.04 percentage point to 6.45 percent excluding fees. These loans were slightly less expensive compared with the year-ago rate of 6.54 percent, the MBA said.

One-year adjustable-rate mortgage rates increased to 5.81 percent from 5.69 percent.

The MBA’s overall mortgage application index includes the purchase and refinance subcomponent indexes.

The MBA’s purchase index rose 3.9 percent to 464.9 for the week ending Aug. 10. The refinancing gauge climbed 2.6 percent to 1,929.6 on a seasonally adjusted basis in the same week.