The Mortgage Bankers Association (MBA) reported a modest gain of 1.3% in mortgage application activity for the week ending October 7, with both purchase and refinancing activity higher. 

The Refi Index rose 1.3% to ~4072 with refinancing share as a percent of total applications holding steady at 79.1%.  Meanwhile, the Purchase Index increased 1.2%.  

According to the MBA, the increases for both refis and purchases were due primarily to government loan activity.  They noted the Government Purchase Index gained 2.4%, while the Government Refi Index jumped 9.9%; the Conventional Purchase and Refi Indexes rose just 0.1% and 0.2%, respectively.

Mortgage rates rose as the market sold off due to less risk aversion.  The MBA reported the average contract interest rate for 30-year fixed conforming loan balances increased seven basis points to 4.25%; rates for jumbo loan balances jumped 10 basis points to 4.59%, while FHA rates rose just one basis point to 4.06%.

Yesterday the MBA released its latest economic forecast. At this time, they project the 30-year mortgage rate averaging 4.2% in the fourth quarter, down from 4.4% in Q3, holding at 4.2% in Q1 2012 before steadily gaining to a 4.7% average by Q4 2012. 

For 2012, they expect refi originations to decline to $495 billion from an estimated $1.1 trillion in 2011 with refi share declining to 55% from an estimated 66%. The economists observed that despite attractive mortgage rates in 2012, there will be fewer eligible borrowers left to refinance. 

Purchase originations are seen slightly higher to $412 billion from a predicted $400 billion in 2011; however, originations remain well below the $472 billion in 2010 that was helped by the homebuyers' tax credit.  Contributing to the anemic activity is slow economic growth anticipated at less than 2% with the unemployment rate called higher to 9.3% for 2012 from 9.1%.

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