As expected, the holidays intruded on mortgage application activity as 30-year fixed mortgage rates closed out the year at their lowest level for 2011.

"Mortgage application activity declined over the last two weeks, even after adjusting for the typical seasonal decline in activity," said Michael Fratantoni, Mortgage Bankers Association's (MBA) vice president of research and economics. However, "refinance applications continue to account for the vast majority of total application volume, with the refinance share reaching its highest level in 2011." 

For the week ending Dec. 30, mortgage application activity declined 3.7% from the week ending Dec. 16 with results adjusted for the Christmas and New Year's holidays.

The Refinance Index slipped 1.9% to 3448.3 over this same period. As a percent of total applications, the refinance share jumped to 81.9% from 80.7%. Meanwhile, the Purchase Index dropped 9.7% to 163.9.

The MBA also reported the average contract interest rate for 30-year fixed-rate conforming mortgages was 4.07%, its lowest level for 2011 as previously noted.

"As part of legislation to extend the payroll tax holiday, guarantee fees for loans purchased by the GSEs and mortgage insurance premiums for FHA loans will eventually increase," Fratantoni said. "Given the announced implementation of this change, we do not expect to see an impact on mortgage rates and application activity until at least February."

Currently, the MBA expects 30-year fixed mortgage rates to average 4.20% for 2012 compared with 4.50% in 2011; refi share is seen at 58% versus 68%.

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