The Mortgage Bankers Association (MBA) reported mortgage applications fell 6.7% in the week ending June 28 due to a decline in refinancing activity. The Refinance Index declined around 8% to 4543 with the share of refinances as a percent of total applications down to 78% from 79% and 81% in the prior two weeks, respectively.

The MBA's press release on the week's applications noted that the decrease in the Refinance Index was "largely driven by a significant drop in refinance applications for government loans."

The jump in government refinance applications in recent weeks will show up in the July prepayment report, which is released in August. The speeds on 2008 cohorts are currently projected to surge 10-30 CPR on 4.5s and 5.0s, 5-10 on 5.5s and by 2-6 on 6s and 6.5s. In August, speeds along these coupons and vintages are expected to increase a further 1-2 constant prepayment rate (CPR).

Also noted was that the Home Affordable Refinance Program (HARP) 2.0 share of applications were running at 24% for the past two weeks after dropping to 20% in the week ending June 15 when the Government Index surged 121%. At this time, speeds on HARP 2.0 cohorts are estimated to increase 2-3% in July and by 4-5% in August (influenced by a higher day count).

The contract interest rate for 30-year fixed rate conforming loans averaged 3.86%, down two basis points from the previous report, and is the lowest in MBA's recorded history. Federal Housing Agency rates also fell to a new low at 3.69% from 3.71%.

Freddie Mac will be out later this morning with its weekly report on mortgage rates.

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