Freddie Mac reported 30-year fixed mortgage rates averaged 5.53%, down 44 basis points from last week's level.
The 15-year fixed mortgage rates were down 41 basis points to 5.33% as the market responded to the Federal Reserve's plan to buy $500 billion in MBS over the next several quarters.
The 30-year mortgage rates are at their lowest level since January 24 when it averaged 5.48%. At this average, the Mortgage Banker Association's (MBA) Refinance Index surged 22% to 5104.
On the adjustable side,rate declines were more moderate. Five-year hybrid ARM rates fell nine basis points to 5.77%, while one-year ARMs were 5.02%, down from 5.18% previously.
Yesterday, the MBA reported its Refinance Index surged a record percentage gain of 203% to 3803 for the week ending November 28. Given the plunge in mortgage rates, Credit Suisse analysts are projecting the Refinance Index will move toward 5000 in next week's report from the MBA for the first week of December.
While current rate levels are attractive, they are seen as inspiring just a mini-refi wave, and not one similar to 2003 or 2004. A factor limiting refinancings are the GSE underwriting standards.
To generate activity like in 2003 and early 2004, Deutsche Bank analysts said would require a significant liberalization of GSE streamline refinancing rules that would allow borrowers to refinance without a new appraisal. The decline in home values has made it almost impossible for many borrowers to refinance.
According to a report from Credit Suisse analysts, at a 5.25% mortgage rate, 78% of 30-year MBS has at least a 50 basis point incentive. They are now projecting mortgage rates to decline to 4.50% to 4.75% during 1Q09 which would result in nearly 100% having an incentive. They noted, however, that the "pull-through" is much lower at 69% compared to 97% that ran from the period 2003 through the first half of 2007 due to the stricter underwriting.
As a result prepayment speed increases will be limited unless underwriting standards are loosened. Given the ongoing strictness, Deutsche Bank analysts are recommending investors maintain an up-in-coupon bias in 30-year conventionals with their favorite coupon being 6.5s as these borrowers face difficulties in refinancing.
While they will be vigilant to changes that would streamline refinancings, they "doubt that such a GSE policy change is imminent." Within premiums, they like LLB and MLB pools.
