The Refinance Index surged 26.4% to 4500.6 in the week ending Jan. 13 and it is closing in on 2011's record high of 4866.7 set in mid-August. This was reported by the Mortgage Bankers Association (MBA) this morning.

As a percent of total applications, the refinancing share increased to 82.2% from 80.8% and is at its highest level since October 2010.  Meanwhile, the Purchase Index rose 10.3% to 195.4.

"With mortgage rates reaching new lows, refinance volume jumped and MBA's refinance index reached its highest level in the last six months," said Michael Fratantoni, MBA's vice president of research and economics. "Interest rates dropped last week due to continuing anxieties regarding the fragile economic situation in Europe."  

The average contract interest rate for 30-year fixed rate conforming loans and FHA loans declined five basis points to 4.06% and 3.91%, respectively – both new record lows, while Jumbo loan rates actually increased to 4.40% from 4.34%.

In addition to the influence of record low mortgage rates, application activity may had some influence with the looming 10 basis points increase in g-fees that becomes effective on April 1. 

Morgan Stanley analysts said in research that some originators are requiring their correspondents to close loans by Feb. 29 to avoid paying the new g-fees. "Thus, there is likely to be a rush to close loan applications by Feb 29," they stated. 

Nomura Securities analysts said they expect the increase to reflect in mortgage applications in February. 

The influence of this increase in application activity will show in the February and March prepayment reports.  At this time, speeds are projected to show slight increases following a modest slowing in January. 

Barclays Capital analysts think that speeds on 2010 3.5s through 4.5s could reach a new high in the February report (released in March) due to the recent decline in mortgage rates to new record lows. These coupons and vintage hit highs in November at 13.5, 24.2 and 24.9 CPR, respectively.

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