Mortgage application activity declined in the week ending June 12 as mortgage rates surged.

According to Freddie Mac's survey, the 30-year fixed mortgage rate jumped 30 basis points to 5.59%, and in the previous two weeks has surged 68 basis points.

The Mortgage Bankers Association reported this morning that the Refinance Index plummeted 23.3% to 1998.1, with the refinancing share dropping to 54.1% of total applications from 59.4% previously. Refinancing activity is at its lowest since mid-November when the index was at the 1200 area and mortgage rates were above 6%.

After three weeks of increases, although modest, the Purchase Index fell 3.5% to 261.2 as borrowers hold off for more attractive mortgage rate levels to take advantage of record high affordability and the first time homebuyers tax credit. This could add to further home price declines if mortgage rates remain elevated. Home prices would have to fall further for a borrower to have the same monthly payment as a few weeks ago when mortgage rate levels were more attractive.

For the July and August prepayment reports, the jump in mortgage rates and the resulting drop in refinancing activity have lowered prepayment outlooks. Prepayment speeds are currently projected to decline for July's activity, which will reported in August, by 10% in FNMAs and nearly double that in GNMAs as refinancing activity has dropped.

In August, FNMAs are projected to drop nearly 30%, while GNMAs are expected to decrease 10% from July.

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