A plunge in applications for government-insured loans was behind a drop in overall mortgage volume last week.

Total mortgage applications fell 3.2 percent on a seasonally adjusted basis from the previous week, according to the Mortgage Bankers Association. Volume was 18 percent lower than the same week one year ago.

Most notable was a 13 percent drop in FHA applications — a direct result of the Trump administration reversing a cut in the FHA's annual mortgage insurance premium just hours after the inauguration. That cut was the last major policy act of the Obama administration and would have decreased monthly payments for thousands of new, lower-income borrowers. FHA applications increased immediately after the cut was announced, and lenders have reported that many of those have also been withdrawn.

The Trump administration's nominee for secretary of Housing and Urban Development, Ben Carson, said he wanted to examine the cut further, along with the fiscal health of the FHA's insurance fund, and make sure a cut in premiums wouldn't increase taxpayer risk. 

"Following the decision to suspend a proposed decrease in the FHA mortgage insurance premium, FHA refinance applications dropped more than 25 percent, while FHA purchase applications fell almost 6 percent," said Michael Fratantoni, chief economist for the MBA.

Adding to overall borrower costs last week was the first jump in mortgage rates of 2017. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,000 or less) increased to its highest level since December, 4.39 percent, from 4.35 percent, with points increasing to 0.34 from 0.30 (including the origination fee) for 80 percent loan-to-value ratio loans.

Applications to refinance a home loan fell 1 percent for the week, seasonally adjusted but are nearly 32 percent below year-ago levels. Refinance volume dipped below 50 percent of overall applications and hit its lowest since July 2015. Mortgage rates jumped decisively following the presidential election, pulled back slightly at the start of the new year and are now heading higher once again. 

Mortgage applications to purchase a home fell a steeper 6 percent for the week and are just 2 percent higher than a year ago. Home price gains continue to increase, and affordability is weakening across the nation, but demand for housing is rising. 

"We do expect that home sales will grow this year relative to 2016, although lack of inventory remains a constraint in many markets," Fratantoni said.

Mortgage rates haven't moved much this week, but the potential for volatility is rising, given more economic data out later this week and the first meeting of the year of the Federal Reserve policymaking committee. The meeting ends Wednesday.

"Although there's essentially no chance that the Fed will hike rates at this meeting, investors will nonetheless look for clues about the Fed's thinking based on subtle changes in the text of the statement," wrote Matthew Graham, chief operating officer of Mortgage News Daily.