As was expected, with the conclusion of the year-end holidays, mortgage application activity increased 4.5% on a seasonally adjusted basis in the week ending Jan. 6.

The Mortgage Bankers Association (MBA) reported the Refinance Index rose just 3.3% to 3560.6 while the Purchase Index jumped 8.1% to 177.1.

While the New Year's holiday-focus was a factor, likely inhibiting refinancing activity to some extent was an increase in conforming loan 30-year fixed mortgage rates to 4.11% from 4.07%.

Meanwhile, the Federal Housing Administration rates held unchanged at 3.96%, while Jumbo loan rates dropped to 4.34% from 4.41%. 

As a percent of total application activity, refinancing share declined to 80.8% from 81.9%, which was the high for 2011. ARM share was at 5.4% versus 4.7% in the previous week.

Refinance activity is expected to see further strengthening this week with mortgage rates hovering record lows and no holiday distractions.

However, to see a significant pickup that brings the 4.0% coupon fully in the money, rates need to drop toward the 3.80% area.

The muted response keeps the outlook for speeds in January and February to being little changed as is typical during winter months.

The impact from the Home Affordable Refinance Program (HARP) 2.0 is expected to start filtering into prepayments in the January report, which will be released in February.

The delay is because lenders were allowed to start accepting applications as late as Dec. 1, HARP 2.0's full impact is not expected until spring into summer.

Fannie Mae's DU will also not be updated for HARP changes until March, while loans with LTVs greater than 125% cannot be place into pools until June.   

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