The Mortgage Bankers Association (MBA) reported a 13% surge in the Refinance Index to ~4220 from 3735 for the week ending May 1, while refinancing share as a percent of total applications rose to 74.9% from 72.1%.

The gain in refinancing activity was due to new record lows in mortgage rates with the contract interest rate for 30-year conforming fixed-rate loans averaging 3.96%, down five basis points. Federal Housing Administration rates declined to 3.75% from 3.81%.

Michael Fratantoni, MBA vice president of research and economics, said: "The increase in refinance activity last week was concentrated in the conventional sector, which was up around 14 percent for the week, while government refinance applications were up only 4 percent.”

He added that the survey participants have indicated that this "was not due primarily to HARP volume – the HARP share of refinances fell to 28 percent of refinance applications, down relative to last week and last month, when the share was just above 30 percent in April."

If the Refinance Index can hold near this level, the prepayment outlook on the lower coupons particularly could be revised upward in June, according to recent comments from Bank of America Merrill Lynch analysts.  

They explained that the continuation of the anemic increase in the Refinance Index as seen in the week ending May 4. This week recorded just a 1.3% increase would bias speeds slower in June (reported in July), while noticeable strengthening could result in upward reassessment.

Currently, 30-year FNMA speeds are projected to increase around 1% on average in June after a projected 7% gain in May.

Meanwhile, the Purchase Index slipped 2.4% to 193. Overall, application activity was higher by 9.2% due to the gain in refinancing activity.

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.