Refinancing activity declined for the fifth straight week, despite new record lows in mortgage rates. 

According to the Mortgage Bankers Association (MBA), the Refinance Index fell 2.5% to ~4180. As a percent of total applications, refinancing share fell to 78.9% from 80.7%, its lowest share since late July.

The slowing came despite the 30-year average contract interest rate for 30-year fixed rate mortgages dropping 13 basis points to 4.25%.

For the month of September, the Refinance Index averaged 5% lower than August at around 4430, even as mortgage rates averaged 4.35% compared to 4.43% in July. 

This suggested prepayment activity for October (reported in November) should be relatively tame. 

At this time, speeds are projected to be more or less flat. Refinancing activity continues to be restrained by several factors: mortgage banker constraints, loan level pricing adjustments or LLPAs, tight credit conditions, and the weak economy and jobs market.

The Purchase Index, meanwhile, increased for the second straight week — gaining 9.3% to ~199.5, and is at its highest level since the home buyers tax credit expired. 

"The increase in purchase activity was led by a 17.2 percent increase in FHA applications, while conventional purchase applications also increased by 3.6 percent," said Jay Brinkmann, MBA chief economist. "One possible driver of last week's big increase in [Federal Housing Administration] applications was a desire by borrowers to get applications in before new FHA requirements took effect Oct. 4, which included somewhat higher credit score and down payment requirements."

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