Mortgage application declined 4.9% in the week ending Sept. 2 in response to lower refinancing activity.
According to the Mortgage Bankers Association (MBA), the Refinance Index dropped 6.3% to ~3169 despite lower mortgage rates.
As a percent of total applications, refinancing share was 77.1% compared to 77.8% in the previous week.
"Heading into the Labor Day weekend, the 30-year rate was at its second lowest level in the history of our survey (the low point was reached last October), and the 15-year rate marked a new low in our survey," said Michael Fratantoni, MBA vice president of research and economics. "Despite these rates however, refinance application volume fell for the third straight week, and is more than 35% below levels at this time last year."
The average contract interest rate for 30-year mortgages fell nine basis points to 4.23% with points also lower to 1.04 from 1.29 for 80% LTV loans. The 15-year rates were eight basis points lower to 3.41%.
Activity remains constrained by tight underwriting; capacity constraints at mortgage bankers that are keeping the primary/secondary spread wide; conservative appraisals; poor home valuations and the poor economy and jobs outlook.
For the month of August, the Refinance Index averaged 39% higher than in July as mortgage rates were 29 basis points lower to a 4.26% average.
This will begin showing up in the September prepayment reports (released in October). At this time, September speeds are seen increasing another 8% to 10% from August's estimates.
A partial offset to this is a lower day count of 21 days in September versus 23 days in August. Speeds are expected to steadily gain with peaks seen in October or November (reported in November and December, respectively).
Meanwhile, the Purchase Index was essentially flat at ~160 and remained near lows last seen in 1996, Fratantoni said.