The records continue to get broken in fixed and 5/1 Hybrid ARM rates. According to Freddie Mac's weekly survey, 30-year rates declined to 4.32% with an average 0.7 point from 4.36% last week.

This places the no point rate at the key 4.50% threshold which has previously been cited as a level where refinancing activity could significantly pick up. The 15-year fixed rates slipped three basis points to 3.83%, while 5/1 hybrid ARMs averaged 3.54% compared to 3.56% previously. Meanwhile, one-year ARM rates were at 3.50%, down two basis points over the week.

Despite mortgage rate levels, the pace of increase in the Mortgage Bankers Association's Refinance (MBA) Index has been slowing.  For example, for the week ending Aug. 13, the MBA's Refinace Index surged 17% to 4677 as 30-year mortgages slipped under 4.5%, rose 5.7% in the following week as rates declined to near 4.40%, and in the most recent report for the week ending Aug. 27 gained just 2.8% to 5084 with mortgage rates in the mid 4.30% area.

It is notable that analysts had projected the Refinance Index to report around the 5500 area. While capacity constraints have eased some in recent weeks, mortgage bankers remain severely constrained.

Analysts anticipate the Refinance Index could reach into the 6000 area. However, based on the most recent results, it appears it will be a struggle until capacity is expanded.

So how low can mortgage rates go? Credit Suisse analysts suggested that with the Federal Open Market Committee minutes signaling a backstop bid for MBS from the Federal Reserve, mortgage rates could potentially rally toward 4%.

At current mortgage rate levels, FTN Financial analysts believe 5% coupons should experience the fastest speeds on the stack given the rate incentive and their relatively high FICO scores. At this time, 4.5s are just marginally refinanceable with the Fed owning a substantial portion, FTN analysts added.

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