Mortgage application activity slipped 2.9% in the week ending Jan. 27 with the Refinance Index declining 3.6% to 4113.8.

While 30-year fixed conforming mortgage rates fell two basis points to 4.09%, they are above recent lows and borrowers may feel they can wait for possible further rate declines, especially with the Federal Reserve on hold for longer. 

Over the past two weeks, the Mortgage Bankers Association's (MBA) Refinance Index has declined 8.6% despite low record mortgage rates. Refinance activity was buoyed by pent-up demand following the year-end holidays and that appears to have passed. 

Additionally, the looming increase in g-fees likely had an influence on activity and that appears done as well as originators now focus on closing loans before the April 1 increase.  

JPMorgan Securities' MBS analysts said they expected that as the g-fee hike's impact becomes more apparent in higher mortgage rates over the coming weeks and the seasonal effect wears off, the index should drop back to the high 3000 area – all else equal.       

As a percent of total applications, refinancing share declined to 80.0% from 81.3% in the previous week.

"Although total application volume dropped on an adjusted basis relative to last week, refinance volume remains high, with survey participants reporting that the expanded Home Affordable Refinance Program (HARP) contributed to roughly 10 percent of their refinance activity," said Michael Fratantoni, MBA vice president of research and economics. 

Application activity associated with the government's HARP is expected to become more noticeable beginning in March as FNMA's DU will be updated for the HARP changes. 

For the month of January, refinancing activity averaged nearly 17% higher to 4110 as mortgage rates averaged three basis points lower to 3.92%.  This will be reflected somewhat in February's prepayment report (released in March) and more fully in the March report. 

At this time, speeds are expected to start turning higher from a projected slight slowing in January with speeds in March seen increasing 8% from February's 3%-4% predicted rise in IFR Markets' sample. Day count in February holds at 20 and increases to 22 in March. 

Meanwhile, the Purchase Index was down 1.7% to 181.7. Despite record affordability, ongoing declines in home prices may discourage potential homeowners from buying a home just yet. 

Yesterday, the S&P/Case-Shiller Home Price Index reported 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. "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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