Citigroup Global Markets said that the rise in this week's Refi Index was roughly in line with recent historical trends and can be largely attributed to the drop in weekly average mortgage rates seen the previous week. Earlier Wednesday, the Mortgage Bankers Association (MBA) Refinancing Index rose to 2072.9 for the week ending Dec. 12, increasing roughly 17% from the previous week’s showing of 1775.5.

Meanwhile, the MBA Purchase Index rose to 437.2 from 399.8 the previous week, which is a 9% increase week over week (seasonally adjusted). The MBA Total Market Index rose by about 13% (seasonally adjusted). The refinance share of total applications increased to 51.8% from 49.4% a week ago

Citigroup says the Index’s reactivity to changes in mortgage rates has apparently dropped significantly in the past three months. This dip might mean that the media effect might almost be gone. Burnout might also be a factor, analysts added.

Weekly average rates decreased by about 15 basis points week-over-week. Analysts said mortgage rates have been zigzagging within a narrow band of 30 basis points to 40 basis points starting early September. The rates are roughly in the middle of that range. As of yesterday, primary mortgage rates varied between 5.75% and 6.125%, according to Citi’s survey of lenders’ Web sites.

JPMorgan Securities noted that the current 30-year, no point mortgage rate is rangebound between 5.75% and 5.825%, reflecting this week’s rally. Analysts said that if this rate holds for the remainder of the year, the seasonally adjusted Refi Index would probably be up by 10% to 15% next week. Going forward, analysts expect the Index to stabilize in the mid to high 1000s for the rest of 2003, given the holiday season. JPMorgan predicts that December prepayments will be flat to slightly lower, even with four more collection days. Analysts said that the average Refinancing Index was 16% lower in November compared to October and could easily cancel out any calendar day effect.

Citi added that the spread between the No-Point Survey Rate and the Base Mortgage Rate has tightened significantly in the past weeks, and it seems to have reached its lowest level since July 2002, which was when the firm started the No-Point Rate Survey. The narrowing of the spread since this summer probably means that lenders have sufficient capacity to process incoming applications without any significant backlog and are now willing to operate at tighter margins to attract more volume. However, this spread is unlikely to tighten much further.

Citigroup predicts that tomorrow’s Freddie Mac Survey Rate would decrease to roughly 5.80%.

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