Fixed mortgage rates declined for the seventh straight week in response to weaker than expected economic news, along with, ongoing European debt woes. 

For the week ending June 2, Freddie Mac reported 30-year fixed mortgage rates declined five basis points from last week to 4.55% with an average 0.6 point which equates to a no point rate of 4.70%.

Despite mortgage rate levels, most MBS analysts say further declines in mortgage rates are needed in order to see a significant pickup in refinancing activity.  In research today from Credit Suisse, analysts said the MBA's Refi Index is unlikely to reach last fall's 5000 peak unless rates decline through 4%.  For the week ending May 27, the Refi Index stood at ~2444.

Continued declines in home prices are one factor limiting refinancing activity with the S&P/Case-Shiller Index reporting a double-dip in housing prices for the first quarter of 2011.  As Morgan Stanley points out in a recent report, borrowers facing declines in home equity are less able to refinance. They added that the effect of this may be felt more in the belly coupons like 5%s, while lower coupons should see less impact on their higher equity levels. 

"At current mortgage rates, it's the belly coupons that are in refinancing range and their reduced home equity position may explain why refinance applications have not picked up recently despite decline mortgage rates," said analysts in the report.

Deutsche Bank also warns that 30-year 4.5s are becoming more susceptible to a prepayment spike, saying a further decline of around 20 basis points in the primary mortgage rate will give this large set of borrowers more than a 50bps incentive.

Freddie Mac also reported 15-year fixed rates set a new YTD low at 3.74% compared to 3.78% last week; 5/1 hybrid ARMs were unchanged at their 2011 low of 3.41%, while one-year ARM rates increased two basis points to 3.13%.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.