Freddie Mac reported a new low of 3.88% on 30-year fixed mortgages for the week ending Jan. 19, down one basis point from last week. 

With the no-point rate holding at just over 4.0%, borrowers underlying the 4.0% coupon have moved into the 40 basis point refinancing window, according to Sandler O'Neill + Partners Managing Director Scott Buchta.

This appears to have been reflected to some extent in the Mortgage Bankers Association's Refinance Index, which surged 26.4% to 4500.6 in the week ending Jan. 13. 

Any influence from Home Affordable Refinance Program (HARP) 2.0 was very small as indicated by the share of Ginnie Mae applications which was similar to the increase in conventionals, as many analysts pointed out, suggesting the jump in refinancing activity was primarily rate driven.

Bank of America Merrill Lynch analysts and other research pointed out that borrowers are aware that low rates will be here for awhile. This is why they were comfortable waiting until the year-end holidays were past before submitting an application, which contributed to the surge.

Refinance activity is expected to show further increases this week with mortgage rates remaining low. In addition to the rate levels, the looming g-fee increase as well as HARP 2.0 changes will show more influence in refinancings.

As far as the recent pickup in refinancing activity and resulting prepayments, it will likely begin to filter into February activity, but more fully in the March report. 

In other products in Freddie Mac's weekly survey, 15-year fixed rates averaged 3.17% compared with 3.16% previously; 5/1 hybrid rates were unchanged at its record low of 2.82%, while one-year ARM rates set a new record low of 2.74% versus 2.76%.

In terms of ARMs, Freddie Mac released its 28th Annual ARM Survey results late yesterday.  The report highlighted that initial-period ARM rates were at the lowest levels recorded in 28 years and that 5/1 hybrid ARM continued to be the most popular ARM product, followed by 3/1 and 7/1 hybrid ARMs.

Freddie Mac's Chief Economist Frank Nothaft noted that ARMs are currently financing just over 10% of new home-purchase loans, up from 3% in early 2009 but well off its peak of 40% in June 2004. 

"We are expecting ARMs to gradually gain back some favor with mortgage borrowers rising to a 14% share of the home-purchase market in 2012," he added.  

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