For the week ending May 30, the Mortgage Bankers Association reported a remarkable 25.7% drop in the Refinance Index to 1496.1.
The MBA used just a a half day adjustment rather than a full day to reflect the Memorial Day holiday. This is a factor to the particularly large decline. Based on Countrywide Securities comments in research this week, a full day adjustment would have placed the Refinance Index in the 1700 area.
This is the lowest refinancing activity has been since the week ending July 28, 2006, when it was at 1417.2 and the 30-year fixed mortgage rate was at 6.72%.
For the month of May, the Refinance Index averaged 2036, down nearly 16% from April's average of 2411. At the same time, 30-year fixed mortgage rates averaged 6.03% compared with 5.95% previously, just 8 basis points higher.
This suggests prepayments should be lower in the June report (reported in July). Currently, speeds are seen down just 1% on average. Given the modest increase on average in mortgage rates in May from April versus the sharp drop in refinancings particularly shows the impact consumer confidence, the ongoing housing issues and tighter lending standards are having on activity.
The Purchase Index was down 5.4% to 333.6, the weakest since early 2003. Overall, mortgage application activity fell 15.3%, which is the lowest since the week ending April 19, 2002 said the MBA.
Contributing to the freefall was a jump in mortgage rates. The MBA said the 30-year fixed contract rate surged 21 basis points to 6.17%. One-year ARM rates, however, were down 12bps to 6.80%.
As a percent of total applications, refinancing share was 40.6%, down from 46.1%. ARM share was also lower to 8.7% from 9.3%.
