Fixed related mortgage rates declined for the third straight week, according to Freddie Mac's weekly survey.

For the week ending March 3, 30-year fixed mortgage rates averaged 4.87% with an average 0.7 point, down eight basis points from last week and 18 basis points from the week ending Feb. 10. The no-point rate is at 5.05% and brings a portion of the 5% coupon back into the refinancing window.

This should lead to a modest pick-up in refinancing activity, although the Mortgage Bankers Association's Refinance Index fell 6.8% in the week ending Feb. 25.

However, there was no adjustment for the Presidents' Day holiday which likely contributed to the decline. In the prior week, the Refinance Index jumped nearly 18% as mortgage rates eased to 5%.

Scott Buchta,head of investment strategies at Braver Stern Securities, expects a muted response in refinancings should rates continue to decline as many of the credit-eligible borrowers have previously refinanced. He added that it would take at least a 50 basis point decline in mortgage rates to stimulate activity significantly or expand the government's Home Affordable Refinancing Program (HARP). 

At this time, HARP is set to expire at the end of June, but an extension is expected. Most analysts, however, do not anticipate an expansion such as a decline in loan-level price adjustments or a change in the eligibility dates.

If HARP is extended, Bank of America Merrill Lynch analysts believe TBA 5s would most likely be affected, especially in a rally scenario as the market currently assumes the 2009 vintage as cheapest to deliver. If it is expanded, a pickup in prepayments will likely occur, particularly in higher coupons.

In other mortgage lending terms, Freddie Mac said 15-year fixed mortgage rates fell seven basis points to 4.15%, 5/1 hybrid ARMs declined eight basis points to 3.72%, and one-year ARMs plunged 17 basis points to 3.23%.

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