Despite record low mortgage rate levels, mortgage application activity slipped with both refinancing and purchase activity lower in the week ending July 9.

The Mortgage Bankers Association (MBA) reported the Refinance Index fell 2.9% to ~3831, while the Purchase Index declined 3.1% to ~164. The MBA said the Purchase Index was at its lowest since December 1996.

As a percent of total application activity, refinancing share was unchanged at 78.7%. ARM share rose 1/10% to 5.5%.

Capacity constraints at mortgage bankers have kept refinancing activity limited. With the GSEs more aggressive in putting back loans for various violations, lenders are more cautious in the process of vetting borrowers. Aside from capacity issues, other constraints cited by mortgage analysts include staffing, changes in the RESPA rules, and closing costs.

These factors have contributed to "stickiness" in primary/secondary spreads and Bank of America Merrill Lynch analysts said that these will also "constrain the refinancing process."

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.