Freddie Mac reported new record lows across fixed- and adjustable-rate mortgages for the week ending Aug. 18 on the flight to quality rally based on worries related to global growth and European Union debt.

The 30-year fixed rates averaged 4.15%, two basis points through its record set November 12, 2010, and down 17 basis points from last week.

Meanwhile, 15-year fixed plummeted 14 basis points to 3.36%, while 5/1 hybrids and one-year ARM rates slipped five and three basis points to 3.08% and 2.86%, respectively.

At this time, there is over $400 billion in 30-year 4.5% coupons that have at least a 40 basis points incentive, according to Scott Buchta, a managing director at Sandler O'Neill & Partners.  He added that for many of these borrowers, this will be their first opportunity to refinance.

Mortgage bankers are reportedly at full capacity. Many analysts have noted the primary-secondary spread has widened to nearly 100 basis points, which should limit further declines over the near term as originators work though the applications.

"Over time, however, we expect primary/secondary spreads to compress allowing the mortgage rate to drop to 4.00%," Credit Suisse analysts said.

Most analysts have expected that at 4.00%, the Refinance Index would reach last year's peak of 5000+. 

Yesterday, the Mortgage Bankers Association reported the index rose a less than expected 8% to ~3916.

The pickup in refinancings will start showing up in the September and October reports (released respectively in October and November) with a predicted average increase of around 10% in each month with peaks currently projected in October/November. 

At this time, speeds on 2010, 2009, and 2008 vintage FN 4.5s are projected at 19, 26 and 32 CPR, up between 138% and 78% from July's levels.

Similar vintage 5% coupons are expected to prepay at 18, 24 and 32 CPR by October, between 80% and 40% higher from July.

Speeds on 2010 and 2009 vintage 4.5s look to match the highs of 2010 as the underlying borrowers get their first real opportunity to refinance, while 2008 are seen prepaying at 69% of its high of last year.

The 2010 5s are expected to prepay slightly faster, while 2009 and 2008 are called at between 84% and 73% of its 2010 peak.

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