Freddie Mac reported 30-year fixed rate mortgage rates dropped eight basis points to a new year-to-date low in the week ending May 12 to 4.63% with an average 0.7 point.

This places the no-point rate at 4.81%, which brings most of the 5% coupon back into the refinancing window. This group of borrowers, more so than 5.5s and especially higher coupons, are considered to be fairly clean in terms of FICO, LTVs, etc. and should be able to take advantage of this latest opportunity.

Deutsche Bank Securities analysts noted recently that there was $350 billion in FNMA 30-year 5s alone, so some pickup in refinancing activity is expected.

The recent decline in mortgage rates has stimulated refi activity with the Mortgage Bankers Association's Refinance Index gaining 15.5% in the two weeks ending May 6.

The index, however, remains at an unimpressive level of ~2269 and, at this time, the prepayment outlook remains fairly benign.

Barclays Capital MBS analysts recently said that in the current environment, they saw "no sign that prepayments would rebound in the next six to nine months." The only risk they noted to this outlook is if Bank of America becomes more aggressive in using the Home Affordable Refinance Program or HARP, which they believe has low odds of happening.

At this time, refinancing activity continues to be limited by tight credit conditions, continued weakening in home values, higher loan-level price adjustments, and reduced competition amongst originators — none of which are expected to change anytime soon.

Not only were 30-year mortgage rates at year-to-date lows, but so were 15-year fixed rate mortgages at 3.82%, down seven basis points over the week, and 5/1 hybrid ARMs which averaged 3.41% compared to 3.47% previously.

Meanwhile, one-year ARM rates slipped three basis points to a record low of 3.11%.

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