Mortgage application activity was essentially flat in the week ending Feb. 24 as an increase in purchase activity was offset by a slight decline in refinancing activity.The Mortgage Bankers Association (MBA) reported the Purchase Index jumped 8.2% to 175.The Refinance Index declined 2.2% to ~4225 with the share of refinancing applications as a percent of total applications falling to 77.9% from 80.1%. This is the lowest share since the beginning of December 2011.

"Mortgage rates remained near survey lows last week, but refinance volume fell slightly," said Michael Fratantoni, vice president of research and economics at the MBA. There was likely some influence from Presidents' Day, although there was a seasonal adjustment made for the holiday.

Particularly interesting was Home Affordable Refinance Program (HARP) activity. "According to survey participants, more than 20 percent of refinance applications were for HARP loans. The HARP share of total refinance applications has increased over the past month," Fratantoni noted.

In acting Federal Housing Finance Agency Director Edward DeMarco's testimony yesterday before the Senate Banking Committee, he discussed the HARP changes that took effect on December 1. He said that most of the industry, including the GSEs, "will continue through the next few months" to be in the process of implementing the changes.

He also said that "many of the largest lenders are seeing tremendous borrower interest and we expect to see an increase in HARP volume in the upcoming reports."

At this time, refinancings from HARP are expected to start filtering into the February prepayment report, but be more pronounced in March. For example, speeds on 30-year MBS are currently projected to increase around 6%-7% on average in February from January, while March records additional strengthening of 10%-15%.

In addition to HARP, seasonals, as well as, the rush by originators to close loans before the 10 basis points g-fee increase goes into effect on April 1 are also expected to influence March speeds. Meanwhile, April slows around 2-3% as the number of collection days drops to 20 from 22 in March.

The MBA also reported the average contract interest rate for 30-year fixed rate conforming loans slipped two basis points to 4.07%, while Federal Housing Administration  mortgage rates moved to 3.86%, their lowest level for 2012, and down one basis point from the previous report.

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