Refinancing activity responded to a further decline in mortgage rates, said the Mortgage Bankers Association (MBA). The Refinance Index jumping 13.2% to ~2568 in the week ending May 13. 

This is the highest the index has been since mid-December. As a percent of total application activity, refinancing share surged to 66.7% from 63.1%, which is the highest the level has been since late January of this year.

The 30-year mortgage rates fell seven basis points to 4.60% with points also declining to 0.94 from 1.10 for 80% LTV loans.  The MBA noted this was the lowest the 30-year rate has been since the end of November 2010.

Michael Fratantoni, MBA vice president of research noted that over the past five weeks, the index has surged 33%. However, he said that "refinance application volumes remain about 50% below the most recent peak last October."

Indeed, the absolute number of the index remains depressed relative to rate levels. Most analysts said rates need to rally to below 4.5% in order to stimulate the index to above the 4000 level.

The weaker response from borrowers to refi opportunities is due in part to burn-out said Credit Suisse, as well as, to certain vintages — such as 2009-2010 — that are ineligible for Home Affordable Refinance Program (HARP). These less seasoned vintages are also subject to higher loan level price adjustments (LLPAs) versus HARP-eligible cohorts under recently revised LLPA guidelines, they noted.  

"The increased LLPAs are clear killers to many borrowers," said Jefferies analysts, adding that  "as coming up with larger out-of-pocket expenses will dampen both purchase and refi activity."

Purchase activity in fact was lower last week despite historical affordability levels with the index slipping 3.2% to 188.8. This is due to tight credit conditions, the uncertain economy and jobs market, and continued declines in home prices.

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