Not surprisingly, mortgage application activity declined in the week ending March 25 as a result of an uptick in mortgage rates.

According to the Mortgage Bankers Association (MBA), the average contract interest rate for a 30-year fixed mortgage jumped 12 basis points to 4.92%.

"Treasury and mortgage rates increased towards the end of last week, as global markets calmed following the recent crises in Japan and the Middle East," said Michael Fratantoni, MBA vice president of research and economics. "Refinance volume predictably fell in response to these rate increases.  As rates climb back to 5%, fewer homeowners have both the incentive and the ability to refinance,"

The Refinance Index dropped 10.1% to ~2222 — its lowest level since the end of February, while the refinance share of mortgage activity declined to 64.3% from 66.4%. The MBA noted the refinance share is the second lowest reported since May 2010.

The Purchase Index slipped 1.7% to ~189 as some borrowers took advantage of historical affordability levels. However, continued declines in home values with "double-dip" talk may make potential homebuyers reluctant to buy a home at this time.

So far in March, the Refinance Index is 14% higher on average than in February in response to a decline in mortgage rates during the month.

Despite the increase in refinance activity, prepayments are expected to decline nearly 10% in April (reported in May), while May is expected to be 5% higher with day count serving as the primary influence on speeds. 

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