Mortgage application activity increased a modest 4.1% in the week ending Aug. 12 despite further declines in mortgage rates, reported the Mortgage Bankers Association (MBA) this morning. 

The Refinance Index rose a much-less-than-expected 8% to ~3916 versus an expectation of a 20% jump closer to 4400.  As a percent of total applications, refinance share rose to 78.8% from 75.6%.

Michael Fratantoni, MBA vice president of research and economics, noted that there was substantial variation across the market regarding refinance volume. 

He said in September, the MBA will expand the survey to cover 75% of the retail market from the current 50%. 

Under the bigger sample, there was a larger increase in refinancing applications than the current one "with some lenders reporting increases in refinance applications in excess of 50% for the week,"  Fratantoni noted. "The big differences in refinance volumes were likely driven by the decisions of some lenders not to drop rates last week, largely due to the need to manage their pipelines."

In a report, Bank of America Merrill Lynch analysts said they were already hearing that lenders were at full capacity, which they think will keep the mortgage rate sticky at 4.25%.

The stickiness is showing as the average contract interest rate for 30-year fixed rates declined five basis points to 4.32% compared with a 32 basis point plunge in 10-year note yields.

Meanwhile, the Purchase Index dropped 9.1% to ~168. Fratantoni attributed this to the hesitancy from potential homebuyers to purchase in the uncertain environment.

Job worries and tight credit conditions are also likely factors as well. In a quarterly survey from Fannie Mae that was released earlier this week, 26% of the respondents were concerned about losing their job in the next twelve months. 

In addition, a large percentage of renters in single-family homes also said they were inclined to remain renting, even if they were to move. That was because 73% of them said it would be difficult to get a mortgage and 33% of them citing poor credit history as an obstacle.

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