Both refinancing and purchase activity declined in the holiday shortened week ending Sept. 10 even as mortgage rates slipped lower, according to the Mortgage Bankers Association (MBA). 

The Refinance Index fell back toward the 4000 level, dipping nearly 11% to a seasonally adjusted ~4395.

As a percent of total application activity, refinancing share was 80.5% compared to 81.9%.  While the 30-year fixed contract rate fell three basis points to 4.47%, points increased to 1.08 from 0.96, the MBA said, for 80% LTV loans.

While the activity was likely impacted by the Labor Day holiday, other factors are also seen as slowing refinancings despite historically attractive mortgage rate levels.  Mortgage banker capacity contraints is one. 

Barclays Capital analysts noted in recent research that, while lenders have added capacity that helped move the Refinance Index toward 5000, they doubt these originators can add quickly enough and might also be unwilling to really ramp up given the uncertain environment. 

As a result, Barclays analysts do noy think originators will handle over 5000 on the Refinance Index. Borrowers might also be anticipating further declines in mortgages rates before initiating a refinancing, Morgan Stanley analysts said. 

This report should further ease fears about prepayments following the larger-than-expected increase in August speeds. 

At this time, speeds on 30-year FNMA MBS are projected to rise nearly 10% on average with 5.5s through 4.5s rising 10-20%.  This compares to a 20% jump in August, as noted above, with surges of 25% to 50% on 5.5s through 4.5s.

Meanwhile, GNMAs are projected to increase less than 5% with modest increases in 5s and 5.5s partially offset by slowing in 6.5s and 7s. October FNMA speeds are expected to increase less than 5%, while GNMAs are expect to slow 5%.  

Meanwhile, the Purchase Index remained near its highest level since late May. The index slid 0.4% to ~184 after jumping over 6% in the previous week to 185 as borrowers took advantage of both mortgage rates and the attractively priced glut homes.

Still, activity remains significantly below levels reached when the homebuyer tax credit was available.   

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