The Mortgage Bankers Association (MBA) Refi Index dipped to 1775.5 for the week ending Dec. 5, a 16% decline versus the prior week's holiday-adjusted level of 2100.

The drop in the Refi Index was most likely related to the rise in weekly average mortgage rates, said Art Frank, head of mortgage research at Nomura Securities International. From Dec. 1-4, the Fannie 30-year current coupon yield ranged from 5.41 to 5.47, increasing from the prior week's level of 5.26 and 5.33. Rates came down again on Friday, Dec. 5, however, after the employment report came out. "The Refi Index results were

driven by the higher rates during that Monday through Thursday period," said Frank.

Frank added that the market is probably seeing originators focusing on harder-to-refi and more paperwork-intensive loans such as FHA mortgages. Originators set aside these loans when the refinancing wave was in full swing. "In seasoned GNMAs, speeds in higher premium GNMAs have not come down as much as other sectors of the market," said Frank

Citigroup Global Markets attributed the dip to the official start of the holiday season, combined with the inclement weather in the Northeast. "This week's decline in the index was somewhat stronger than we expected and may accentuate an expected decline in January speeds," wrote analysts last Wednesday.

Assuming application activity will remain at the past week's level (holiday-adjusted), Citi will lower its aggregate projection for the January prepayment report by 1.5% CPR. Citi currently predicts a 15% slowdown in January speeds, which would follow a 5% to 10% pickup in December.

Meanwhile, the MBA Purchase Index declined by about 10% week-over-week (seasonally adjusted). The MBA Total Market Index dropped approximately 12% (seasonally adjusted).

Despite the rate rally on Dec. 5, weekly average rates rose by about 15 basis points for the five-day period. Citi said that mortgage rates have been "zigzagging" within a narrow band of 30 to 40 basis points since the beginning of September. Rates are currently in the middle of this range, analysts said.

As of Tuesday last week, primary mortgage rates were between 5.75% and 6.25%, based on Citi's survey of lenders' Web sites.

As expected, mortgage rates reported in the Freddie Mac survey last Thursday were significantly lower. The survey reported that the 30-year fixed rate mortgage slid to 5.88% from 6.02% and the 15-year rate fell to 5.24% from 5.36%. Meanwhile, the one-year ARM rate remained at 3.77%.

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