Mortgage application activity slipped 0.7% in the week ending March 11 as a result of lower purchase activity.

The Mortgage Bankers Association reported its Purchase Index declined 4% to ~187, while the Refi Index increased 0.9% to ~2407. This is the highest level the index has been since early December 2010.

The modest gain in refinancing activity resulted from a 14 basis points decline in the 30-year average contract interest rate to 4.79%, the lowest the rate has been since mid-January. 

As a percent of total application activity, the refinancing share rose to 66.4% from 65.5%. ARM share declined to 5.6% from 6.0%. 

Unless mortgage rates drop closer to toward 4.25% to give 4.5% coupons an incentive, only a limited response in refinancing activity is expected as many credit-eligible borrowers already have taken advantage of previous refinancing opportunities available in 2010. 

As a result, day count will be the significant influence on prepayment speeds in the foreseeable future. 

In April and May, when this latest report will filter through to speeds, a decline of 5% to 10% is expected in April on conventionals following a small increase in speeds in March as the number of collection days drops to 20 from 23. 

In May, conventional speeds are seen increasing around 5% on a combination of strengthening seasonals and one extra collection day.

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