Mortgage application activity rose 5.8% in the week ending Nov. 5, the Mortgage Bankers Association (MBA) reported.

Both refinancing and purchasing activity are increasing. The Refinance Index increased 6% to  around 4590 as the average contract rate for 30-year fixed rate mortgages held steady at 4.28% with points declining to 1.05 from 1.07 for an 80% LTV loan. As a percent of total activity, refinancing share increased to 81.7% from 81.3%.  

Despite the gain, refinancing activity remains muted relative to the historically low mortgage rate levels. 

Ongoing tight credit standards, along with capacity constraints at mortgage bankers are the primary reasons.

As a result, prepayment speeds are not seen increasing meaningfully over the foreseeable period.

The initial outlook for November is for 30-year FNMA and GNMA speeds to increase 2-3% with the largest percentage increases in 4.5s at 7% and 5s at 3%, while super premiums are seen flat to lower. 

Looking a bit further out to December, speeds are seen increasing about 5% from November's estimate with uniform increases across the stack for the most part with one additional collection day factoring in.

Barclays Capital said that for a rate driven refi event to occur, mortgage bankers would have to sharply increase capacity while the Refi Index would need to move steadily higher and hold those gains - and "neither seems likely in the near future." 

Meanwhile, the Purchase Index was 5.5% higher to 189 - its third consecutive weekly gain - as homebuyers took advantage of record high affordability. The MBA's press release particularly noted the conventional purchase index increased 5.4% to its highest level since May.  

"The increases in purchase applications we have seen over the past couple of weeks align with the better than expected news from October's employment report and other data indicating some improvement in the economy's growth prospects," said Michael Fratantoni, vice president of research and economics.

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