Mortgage application activity recorded a modest 1.7% increase in the week ending May 4 as mortgage rates set new historical lows.

The rise came on gains in both refinancing and purchase activity, according to the Mortgage Bankers Association (MBA).

The Refinance Index rose 1.3% to ~3800 with a 1.8% rise in conventional refinancing activity offsetting a 2.3% decline in government refinancing. As a percent of total applications, refinancing share slipped to 72.1% from 72.6% due to the slippage in government applications.

Government refinance applications should start picking up in June when lower upfront and annual fees go into effect for loans originated before June 1, 2009.

Meanwhile, the Purchase Index rose 3.4% to ~198. In particular, the MBA noted the government purchase share fell to its lowest share since late March 2009, 35.8%, from 37.0% two weeks ago. Possibly contributing to this was an increase in the upfront and annual insurance premium beginning in April.

The MBA reported the contract interest rate for 30-year fixed rate conforming mortgages averaged 4.01%, down four basis points from the prior week, and is the lowest the rate has been in the survey's history.

The 15-year rates also moved to new lows at 3.29% from 3.31%. FHA rates, however, was a basis point higher to 3.81%.

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