Mortgage applications increased slightly last week on strong borrower interest in government-insured mortgages, the Mortgage Bankers Association reported Wednesday morning. The group's composite index of purchase and refinancing activity rose 1.5 percent on a seasonally-adjusted basis, reflecting an 8.5 percent jump in government loan application activity. The seasonally adjusted refinance index declined 2.1 percent, the MBA said, while the purchase index rose 5.3 percent, largely due to increased short sales and foreclosures. "The [refinancing] index has become less responsive to small rate movements as the mortgage market has seized up and banks are reluctant to lend," analysts at Barclays Capital said in a research note Wednesday. "However, the government refinance index stayed almost unchanged, coming in at 3178, only 0.3 percent down from the previous week. As government mortgages represent a less costly alternative for credit-impaired borrowers, the migration from conventional/non-agency mortgages to government mortgages has increased the share of government applications to one-third so far." A rise in application activity was also observed in the MAX, a weekly application index reported by Mortgage Maxx LLC, which reported Monday that application volume rose 9.9 percent on REO and foreclosure activity. "REO sales are most likely behind buoyed activity," said Paul Descloux, publisher at Mortgage Maxx. "[A]bsent those sales, which have been peaking, the MAX would probably be about fifty already, the year end target." Buttressing Descloux's take on the market, a MAX subindex tracking applications in California found that activity rose even more sharply, at a seasonally-adjusted 12.3 percent. The Golden State has seen a strong pickup in REO sales activity in recent weeks. For more information, visit http://www.mortgagebankers.org and http://www.mortgagemaxx.us. Write to Kelly Curran at kelly.curran@housingwire.com