The Mortgage Bankers Association reported a 13.5% jump in the Refinance Index to ~3935 for the week ending April 13. This is its highest level since the week ending March 9.

In addition, refinancing share as a percent of total applications rose to 75.2%, its highest level since early March, after dropping to its lowest share since last July at 70.5%. A bigger response was anticipated in part because the prior week's data was not adjusted for the Good Friday holiday, as well as, due to a decline in mortgage rates back near record lows.

The notable aspect of the report was the Home Affordable Refinance Program (HARP)-related refinancings."Participants in our survey indicated that about 32 percent of this refinance volume was for HARP loans," Jay Brinkmann, MBA chief economist said.

Morgan Stanley analysts noted in recent research that there is a clear focus across all servicers on boosting HARP refinancings and that Citi-serviced pools are moving in on speeds of Chase-serviced ones.

While HARP activity is filtering into prepayments, the full ramp up of HARP 2.0 is not expected until the May report (released in June), Credit Suisse analysts said. Meanwhile, Morgan Stanley analysts believe that after the past two prepay reports, risk is now to the upside in part because margins associated with HARP refis are very high for lenders and that profitability on >125 LTVs is very attractive.

At this time, conventional prepayment speeds are projected to slow around 5% on average in April from March with 4.5% coupons and lower dropping around 10%. Meanwhile, 5.5s and higher are seen slipping just 2.0% on increased HARP 2.0 refinancing activity. Looking ahead to May, speeds on 30-year FNMA and FHLMC Golds are projected to be flat to slightly higher on 3.5% through 5.0%s and by around 5% on higher coupons.

Meanwhile, the Purchase Index dropped 11.2% to 181 as applications for Federal Housing Administration (FHA) purchase loans plunged 23%.  

"This drop follows big increases in the demand for FHA loans over several weeks in anticipation of the FHA mortgage insurance premium increases that went into effect last week," Brinkmann said. "This was the largest weekly drop in the government purchase index since the expiration of the first-time homebuyer tax credit in May 2010. The demand for conventional purchase loans was down only slightly."

As a result of the recent flight-to-quality rally, 30-year mortgage rates are back to lows reached last February. The contract interest rate for 30-year fixed conforming loans declined to 4.05% from 4.10%, while FHA rates were down four basis points to 3.83%.

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