Refinancing activity jumped in the week ending Aug. 13 in response to historically attractive mortgage rate levels. 

The Mortgage Bankers Association (MBA) reported that the Refinance Index surged 17.1% to ~4672.

This is the highest level the index has been since mid-May 2009. As a percent of total application activity, refinancing share increased to 81.4% from 78.1%, its highest level since January 2009. Meanwhile, after four weeks of gains, the Purchase Index slid 3.4% to ~ 170.

The MBA also reported that the average contract interest rate for 30-year fixed rate mortgages rose three basis points to 4.60%, with points slightly higher as well.

Capacity constraints have been a factor in keeping refinancing activity in the 4000 area. According to Morgan Stanley analysts, mortgage bankers are working to reduce those constraints.

They said originators have indicated to them in conversations that they've been, "actively involved in increasing their capacity and they expect these constraints to be lifted over the next few weeks."

This would suggest that the Refinance Index could become more responsive to mortgage rate levels in coming weeks.

As a result, prepayments would likely increase on those vintages most able to take advantage of the record low mortgage rate environment: newer 4.5s and 5s.

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