Mortgage application activity showed limited response to a further decline in mortgage rates for the holiday-shortened week ending June 3 with overall activity slipping 0.4% on a seasonally adjusted basis. 

According to the Mortgage Bankers Association, the average contract interest rate for 30-year fixed rate mortgages fell four basis points to 4.54% with points decreasing five basis points to 0.95 for 80% LTV loans.  They said this was the lowest the rate had been since November 19, 2011.

Even so, the Refi Index rose just 1.3% to ~2476, while the Purchase Index fell 4.4% to ~183 despite record level affordability. As a percent of total application activity, refinancing share increased to 67.3% from 65.7% and is the highest share since the end of January, 2011. ARM share was little changed at 6.1% versus 6.2% previously.

Refi activity continues to be hampered by tight underwriting conditions, continued declines in home valuations, higher financing costs, and capacity constraints at mortgage bankers.  In addition, this time around there is a lower number of eligible borrowers who can refinance through HARP as many already took advantage of this opportunity last year.  This was a major contributor to the elevated refi activity seen in the second half of last year.

A significant pickup to the 4000-5000 area experienced late last summer/early fall, however, is not projected unless mortgage rates fall significantly further.  

Barclays Capital believes primary rates need to approach 4.15% in order for the MBA's Refi Index to reach that level and think the 10-year note yield would need to drop 95 basis points from current levels to hit that.

Credit Suisse said in recent research that it's their view that mortgage rates need to decline through 4% in order for prepayment speeds to reach last year's peaks.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.