Refinancing activity surged — as was expected — in response to the dramatic decline in mortgage rates following the government takeover of the GSEs.

For the week ending Sept. 12, the Refinance Index surged 88.1% to 2300, its highest level since early May. The Purchase Index rose just 2.8% to 342.8.

The Mortgage Bankers Association reported the 30-year fixed contract rate averaged 5.82%, down 24 basis points from the previous report.  The one-year ARM rate slipped five basis points to 6.95%.

As a percent of total applications, refinancing share was 51.6%, up from 36.3%.  The last time refinancing share was above 50% was in April. ARM share fell to 4% from 6.4%.

Further gains, particularly, in refinancing activity is expected to continue.  FTN Financial noted in a report that about 42% of the outstanding 30-year agency MBS universe has 50 basis points incentive to refinance, and 14% have a 100% incentive. This is up tremendously since July when less than 10% of the mortgage universe had an incentive to refinance.

Expectations are for the Refinance Index to soar above 3000 and possibly up to 5000 in the weeks ahead. 

The impact of the more favorable rate environment is not expected to be felt until the October report — due out in early November. Speeds are projected to surge 25% to over 30% in October with the largest percentage gains seen in 2007 vintages, and in 5.5% and 6% coupons.

On average, 6%s are seen increasing 46% from September and 5.5%s 40%.  At this time, speeds are expected to turn modestly lower in November as a result of slower seasonals and five less collection days compared with October.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.