Mortgage application activity was mixed in the week ending July 23, according to the Mortgage Banking Association.

Refinancing activity slipped in response to an increase in mortgage rates, while purchase activity rose.

The weekly survey reported the average contract interest rate for 30-year fixed rate mortgages jumped 10 basis points to 4.69%.

Responding to the higher rates, the Refinance Index fell from its highest level in over a year by 5.9% to ~3915. As a percent of total application activity, refinancing share fell to 78% from 79.4% previously.

The better credit borrowers are sensitive to rate levels and their incentive. If rates reverse and continue to decline, increasing the incentive, borrowers "will continue to take advantage, and this index (Refinance) is likely to continue to climb higher," said Morgan Stanley analysts in a recent report.

For the first three weeks in July, the Refinance Index has averaged 16% higher than in June. At this time, the outlook for August prepayments (which are reported in September) is for 30-year FNMA speeds to increase 15%.  Additionally, contributing to the increase is one more collection day — 22 in August versus 21 in July.

Meanwhile, the Purchase Index increased for the second week in a row by 2.0% to ~173.

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