Mortgage rates surged in the week ending June 4, reported Freddie Mac in its weekly survey. The 30-year fixed mortgage rate averaged 5.59% (with an average 0.7 point), up 30 basis points from last week.

This places the "no-point" rate above 5.70%, or back to November levels. In other terms, 15-year fixed rates rose 27 basis points to 5.06%, 5/1 hybrid ARMs jumped 32 basis points to 5.17%, and one-year ARM rates averaged 5.04%, 23 basis points higher than last week.

Further increases in mortgage rates are expected to continue the trend lower in refinancing activity towards the low-2000 area. Yesterday, the Mortgage Bankers Association reported the Refinance Index declined 12% to 2606, while the refinancing share dropped to 59.4% of total applications from 62.4%. This is the lowest level for both since the latter part of November.

It also portends slower prepayment speeds in the coming months. The current outlook suggests peaks in prepayment speeds arriving in June (released in July), while the July and August reports have speeds slowing.

At this time, speeds in June are projected to increase around 10% on FNMAs, while July and August are expected to decline 11% and 30%, respectively.

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