Fixed related mortgage rates eased off their recent highs for the week ending Feb. 17. According to Freddie Mac, 30-year fixed mortgage rates averaged 5.0%, down five basis points, with a 0.7 average point.

This places the no-point rate at the 5.20% area and keeps much of the credit-eligible borrowers out of the refinancing window.

In other terms, 15-year fixed rates slipped two basis points to 4.27%. The 5/1 hybrid ARMs averaged 3.87% versus 3.92% previously, while one-year ARMs were four basis points higher to 3.39%.

Rate levels should continue to adversely impact mortgage application activity. In the week ending Feb. 11, the Mortgage Bankers Association's Refinance Index dropped over 11% to ~1849, its lowest level since July 2009, while refinancing share dropped to 64%, its lowest level since May 2010.

Mortgage rates, however, are historically attractive. In fact Freddie Mac Chief Economist Frank Nothaft pointed said: "Prior to 2009, interest rates for 30-year fixed-rate mortgages had never been at 5% since our survey began in April 1971."

Despite this, purchase activity declined nearly 6% in the latest report to ~175. Scott Buchta, head of investment strategy at Braver Stern Securities, said that "the recent rise in mortgage rates has had a psychological effect on potential home buyers." 

Not helping as well, he added, was that the effective Federal Housing Administration (FHA) rate for first time homebuyers was above 5.6% and could be possibly higher depending on the how much is put down on the loan.  Further adding to the cost is the 25 basis points annual increase in the MIP for FHA loans.

The effect of rate levels and refinancing activity will keep prepayment speeds generally slowing and supply declining.

At this time, consensus has 2008 and 2009 vintage 4.5s prepaying at 9 and 16 CPR by April (reported in May), compared to 13 and 28 in January. Similar vintage 5s are expected at 13 and 23 CPR, down from 18 and 32.

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