Lower mortgage rates spurred both purchase and refinancing  applications in the week ending May 6. The Mortgage Bankers Association reported the 30-year fixed mortgage rate averaged 4.67%, down nine basis points from the prior week and is at its lowest since December 2010.  

"The 30-year fixed mortgage rate is now 46 basis points below its 2011 peak, and has decreased for four straight weeks by a total of 31 basis points," said Michael Fratantoni, MBA vice president of research.

Record affordability conditions aided the Purchase Index which rose 6.7% to ~195. Meanwhile, the Refinance Index jumped 9% to ~2269, its highest level since mid-March. 

Additionally, the refinancing share of total applications increased to 63.1% from 62.7%. Fratantoni noted that over the past four weeks, the Refinance Index has increased nearly 18% "despite the recent increases however, refinance application volumes remain more than 50% below levels seen last fall."

This of course is due to continued tightening in credit conditions, further weakening in home values, higher loan level price adjustments, reduced competition among originators, burnout and a more robust jobs market.

In addition, many able borrowers have already taken advantage of prior opportunities to refinance.

While the recent decline in mortgage rates to their lows of 2011 (4.71% on 30-year fixed rate mortgages) have placed borrowers with above a 5% note rate into the refi window, Morgan Stanley analysts pointed out that many of these borrowers have low FICO scores and higher LTVs that makes it more difficult for them to refinance. 

The analysts added that it would take a further decline for a significant number of cleaner credit borrowers to move into refinancing territory, a factor that Credit Suisse analysts said is likely at 4.5%. However, if rates continue to rally mortgage rates are not expected to decline as fast as the primary-secondary spread has tended to widen in rallies.


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