Overall mortgage application activity rose a slight 0.9% in the week ending July 20 as higher refinancing activity more than offset a decline in purchase activity.

According to the Mortgage Bankers Association's (MBA) weekly survey, the Refinance Index eked out a 2% increase to roughly 5421as mortgage rates held at record lows and is the highest the index has been since April 2009. As a percent of total application activity, refinancing share increased to 81% from 80.1%.

The muted response in refinancings was expected. However, further increases seem unlikely based on recent experience unless mortgage rates press much lower. For example, for the June 15 period, the Refinance Index hit a 39-month high of 5386 and then declined over 8% in each of the following two weeks despite slightly lower index reported at 4538, its highest level since mid-August 2011, activity declined in the following rates. Prior to that in mid-February when the week by 5% even as rates held steady.

The average contract interest rate for 30-year conforming loans was unchanged at a record low 3.74%, while Federal Housing Administration rates slipped to a new historic low of 3.52% from 3.55%.

This activity will start showing in the August prepayment report, which will be released in September. At this time, speeds are estimated at around 5% higher on average from July with lower coupons rising around 10% and Home Affordable Refinance Program (HARP) coupons up 5%. Day count is a strong influence as it increases to 23. Prior to that in July, conventional prepayment speeds are expected to increase around 5% on average with the largest percentage increases in 2010 and 2011 3.5s and 4.0s, which are projected to surge between 25% and 35% in response to the record low mortgage rates; HARP-eligible 5.5s through 6.5s are expected to increase a modest 1%-2%.

Despite overall record affordability, the Purchase Index declined 3% to 186.

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.