Mortgage applications slipped 2.4% in the week ending Aug. 19 with both refinancing and purchase activity lower. 

The Mortgage Bankers Association (MBA) reported the Refinance Index was 1.7% lower to ~3850 from 3916 versus an expectation that the index would increase toward 4200.

Higher mortgage rates were the culprit, apparently, with the average contract interest rate for 30-year fixed-rate mortgages increasing seven basis points to 4.39% with points increasing slightly as well and reducing the incentive for many borrowers underlying the 4.5% coupon. 

As a percent of total applications, refinancing share increased to 79.8% from 78.8%.

So far in August, the Refinance Index is up 47% on average versus in July as mortgage rates are 25 basis points lower. 

The pickup in refinancings from the sharply lower rates will start showing up in the September and October reports (released respectively in October and November) with a predicted average increase of less than 10% in each month with peaks projected in October/November. 

At this time, speeds on 2010, 2009, and 2008 vintage FN 4.5s are projected at 20, 27 and 35 CPR, up between 150% and 94% from July's levels — this is an upward revision from last week as several firms have increased their prepayment projections.

Similar vintage 5% coupons are expected to prepay at 19, 25 and 33 CPR by October, between 90% and 43% higher from July.

Speeds on 2010 and 2009 vintage 4.5s look to match the highs of 2010 as the underlying borrowers get their first real opportunity to refinance, while 2008 are seen prepaying at 75% of its high of last year.

The 2010 5s are expected to prepay slightly faster, while 2009 and 2008 are called at between 87% and 76% of its 2010 peak.

Meanwhile, the Purchase Index remained unresponsive to record affordability with activity declining 5.7% to ~158. 

"Another week of volatile markets and rampant uncertainty regarding the economy kept prospective homebuyers on the sidelines, with purchase applications falling to a 15-year low," said Michael Fratantoni, MBA vice president of research and economics. "This decline impacted borrowers across the board, with purchase applications for jumbo loans falling by more than 15 percent, and purchase applications for the government housing programs (FHA, VA, and USDA) falling by 8.2%."

Two recent surveys from Fannie Mae also help to explain the lack of response from homebuyers to record affordability.

Twenty-six percent of American workers are concerned about losing their jobs over the next 12 months. Additionally, 44% of them indicate their household expenses have increased significantly in the past year.

Meanwhile, 73% of renters living in a single-family home said it would be difficult for them to qualify for a mortgage with a large portion of them citing poor credit history as an obstacle.

Further home price declines are expected over the next year.

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