Despite historically low mortgage rates, mortgage application activity increased just 0.6% for the week ending Aug. 6.

The Mortgage Bankers Association (MBA) reported that the average contract interest rate for 30-year fixed rate mortgages declined three basis points to 4.57%, which was the lowest rate ever recorded in the survey.

Despite this, the Purchase Index rose just 0.3% to ~176, while the Refinance Index was slightly better, rising 0.6% to ~3990.

The Refinance Index ceiling seems to be 4000, Barclays Capital analysts said. This seems to be the result of capacity constraints, JPMorgan Securities analysts said.  This suggests prepayments speeds will likely peak in August/September. However, speeds are likely to remain at the plateau for an extended period of time, JPMorgan analysts believe.

Barclays analysts added that as the Treasury has ruled out a government-induced refinancing program  — at least for now. They added that over 40 CPR on any major FNMA coupon/vintage seems unlikely, even if no-point mortgage rates drop to 4.5%. No-point rates are currently around 4.70%.

As a percent of total application activity, refinancing share increased one-tenth to 78.1%. The ARM share was also higher to 5.9% from 5.4%.

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