The Mortgage Bankers Association (MBA) reported mortgage applications rose 13% in the week ending June 10 as the average 30-year fixed contract rate eased three basis points to 4.51%.  This is the lowest level since last November.

 "Mortgage rates have declined for 8 of the past 9 weeks. Coming off of the Memorial Day holiday, refinance application volume increased significantly, as borrowers jumped to lock in the lowest mortgage rates since last November," said Michael Fratantoni, MBA's vice president of research and economics. "The volume of refinance applications still remains 28 percent below levels seen at that time, as borrowers with an incentive to refinance remain constrained from doing so by lack of equity in their homes."

The Refi Index jumped 16.5% to ~2884. For the holiday-shortened week ending June 3, the index rose just 1.5% as there was only a 1/2-day adjustment made for the Memorial Day holiday.  Using a full day adjustment would have placed the index at 2800, said Credit Suisse, which would have been a nearly 15% increase in activity. 

As a percent of total application activity, refinancing share rose to 70% from 67.3% and is the highest share since January 21, 2011.  Meanwhile, the Purchase Index increased 4.5% to ~191, essentially erasing the decline in the last report.

While the decline in mortgage rates and pickup in refinancing activity will increase prepayments in coming months, speeds are not expected to reach 2010 peak levels unless mortgage rates decline closer to the 4% area.  The current outlook projects conventional speeds to increase around 10% in June on a higher day count and increase in refinancing activity in May, while July and August are predicted to increase 5% in both months. 

At this time, 2010 and 2009 vintage FN 4.5s are seen prepaying at 8 and 13 CPR in August from 5 and 7 CPR in May, while similar vintage 5s are called at 10 and 16 CPR compared to 6 and 10 CPR.  This is off peak levels of 2010 of 12 and 19 for 4.5s and 11 and 26 for 5s.

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