Mortgage rates reversed course after last week's pop with new record lows reported for 30- and 15-year fixed and 5/1 hybrid ARMs, according to Freddie Mac's survey.

For the week ending Feb. 2, 30-year fixed mortgage rates averaged 3.87%, down 11 basis points from last week, with the no-point rate at ~4.05%.

This should help stimulate refinance volume that had slowed partly due to the short-lived backup in mortgage rates. Also aiding the recent strength in refinance activity has been pent-up demand related to the year-end holidays and the proactive response to the April 1 increase in the g-fee.

The influence from these latter two events, however, is likely winding down for the most part. JPMorgan Securities MBS analysts believe that as the g-fee hike becomes more reflective in higher mortgage rates in coming weeks and the seasonal effect wears off, the index should drop back to the high 3000 area – all else being equal.

Home Affordable Refinance Program or HARP 2.0 application activity, though, should become more noticeable, particularly beginning in March when FNMA's DU will be updated for the HARP changes. It already is starting to show, with Michael Fratantoni, Mortgage Bankers Association's vice president of research and economics, noting that survey participants reported that the expanded HARP contributed to around 10% of their refinance activity.

In other products surveyed, 15-year fixed rates dropped 10 basis points; 5/1 hybrid ARMs declined to 2.80% from 2.85%, while one-year ARMs were two basis points higher to 2.76%.

Despite record low mortgage rate levels, borrowers continue to face strong headwinds in their ability to refinance as indicated by the latest quarterly Senior Loan Officers Opinion Survey from the Federal Reserve.

The survey indicated that credit standards for both prime loans and non-traditional loans have largely remained unchanged, in other words still very tight, while demand for both was seen as little changed as well.

Home prices also continue to struggle with the S&P/Case-Shiller Home Price Index reporting a larger-than-expected decline of 1.3% in November from October for both the 10- and 20-City Composites, while year over year prices were down 3.6% and 3.7%, respectively.

"Despite continued low interest rates and better real GDP growth in the fourth quarter, home prices continue to fall," said David Blitzer, chairman of the index committee at S&P Indices, adding "The trend is down and there are few, if any, signs in the numbers that a turning point is close at hand."

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