Mortgage application activity increased 15.5% in the week ending March 4 with gains in both refinancing and purchase activity. 

The prior report was not adjusted for the Presidents' Day holiday, which factored into the increase. Another factor are the lower mortgage rates. Last week, Freddie Mac reported a decline in mortgage rates to 4.87% from 4.95% in the prior week.

According to the Mortgage Bankers Association (MBA), the Refinance Index jumped 17.2% to ~2385, its highest level since mid-January, while the Purchase Index was 12.5% higher to ~195. 

"Taking into account typical seasonal patterns, purchase applications rose to their highest level of the year last week," said Michael Fratantoni, MBA vice president of research and economics. "On an unadjusted basis, purchase application activity is the highest since last May. An improving job market is beginning to pave the way for an improving housing market. Additionally, mortgage interest rates remained below 5% for a second week, maintaining affordability for buyers and leading to an increase in refinance applications."

As a percent of total application activity, refinance share increased to 65.5% from 64.9%. ARM share was higher as well to 6.0% from 5.5%. 

Seasonals along with day count are seen as the major influences on prepayment speeds over the foreseeable future as only a small percent of credit-eligible borrowers have an incentive to refinance at current mortgage rate levels. 

In March, the number of collection days jumps to 23 from 19 in February which is expected to lead to a modest pick-up in CPRs. 

The early outlook projects a 3% increase in speeds in 30-year FNMAs. Limiting the increase is over an 8% decline on average in February in refinancing activity in response to a 19 basis points average increase in 30-year fixed mortgage rates. 

April speeds are expected to decline nearly 10% as day count drops to 20, while May is seen 5% higher with one extra collection day and the increasing influence from the spring buying season. The seasonal influence, however, is expected to be diminished relative to historicals as a result of the housing market weakness.

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