As anticipated, mortgage application activity remained unresponsive to historically attractive mortgage rate levels for the week ending May 8.

According to the Mortgage Bankers Association (MBA), the Refinance Index declined 11.2% to 4588.6, with refinancing share as a percent of total applications falling to 71.9% from 74.4%.

In the past three reports, refinancing activity has moved back to its lowest since the Federal Open Market Committee's March meeting.

At that time, mortgage rates were in the low 5% area. Following the Federal Reserve's statement increasing MBS purchases and adding longer Treasuries, the Refinance Index rallied to over 6000 as mortgage rates declined below 5%. Since then, the 30-year fixed mortgage rate has averaged 4.84%.

As we have highlighted, refinancing activity has been limited by: capacity constraints at mortgage lenders ranging from employment to need to gear up systems to handle the new programs, ongoing declines in home prices, employment issues, and second liens, are among some of the factors.

At this time, prepayment speeds are expected to moderate in the June report (reported in July) with prepayment increases at a projected 10% in June for FNMAs and half that much in GNMAs, while July is looking essentially flat for both.

Specifically in FNMAs, by July speeds on 2008-2006 vintage 6s are expected to be in low 40 CPR area, while 6.5s and 7s are projected to prepay in the mid 30s.

The MBA also reported the Purchase Index rose 0.5% to 265.7 from 264.3 as first time homebuyers take advantage of the affordability in home prices and the $8,000 tax credit this year.

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