New record lows in mortgage rates provided a modest 1.3% stimulus in mortgage application activity for the holiday-shortened week ending June 1.

The Mortgage Bankers Association reported the Refi Index rose 2.0% to ~4476, its highest level since early/mid-February when the index was in the low 4500-area. As a percent of total applications, refinancing share jumped to 78% from 76.6% with the share also at its highest since the latter half of February.

The contract interest rate for 30-year conforming fixed mortgage rates averaged a historic low of 3.87%, down from 3.91% in the prior week. Meanwhile, FHA rates held at a record low 3.70%.

In a report today from Deutsche Bank, analysts noted that 90% of 30-year MBS have a 50 basis point refi incentive with a sizeable share of 4.0% now having an attractive opportunity. Given the refi risks in 4.0s, they think it is "time to lighten up on that coupon" as they expect prepayments to start showing up in June (reported in July). They added that the next key level for the mortgage market will be if mortgage rates reach 3.50% which will give borrowers underlying the 3.50% coupon a 50 basis points incentive.

The Purchase Index decreased just slightly from 186.

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