The recent rally brought on by weaker than expected economic news pushed 30-year fixed mortgage rates to match its year-to-date lows, while 15-year fixed, 5/1 hybrid ARMs and one-year ARMs all set new lows for 2011.

For the week ending May 5, Freddie Mac reported that 30-year fixed mortgage rates averaged 4.71% with an average 0.7 point, down seven basis points from last week. This puts the no-point rate at below 4.90%, which should lead to a pickup in refinancing activity.

Indeed, for the week ending April 29 the Mortgage Bankers Association (MBA) recorded a 6% increase in the Refinance Index to ~2082.

In mid-January, when mortgage rates were at 4.71%, the Refinance Index was near 2400. It is unlikely, however, that the index will move above this level unless mortgage rates drop noticeably further as many borrowers who can refinance have already done so. 

Credit Suisse analysts suggested a rally to 4.50% from current levels would likely re-ignite prepayment concerns.

In the other loan programs, 15-year fixed mortgage rates averaged 3.89%, down eight basis points over the week; 5/1 hybrid ARMs averaged 3.47% compared with 3.51% previously, while one-year ARM rates changed slightly at 3.14% versus 3.15%.

ARM rate levels have increased ARM share as a percent of total applications to 6.7% in the recent MBA survey, its highest level since late October 2009.

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