The seasonally-adjusted Mortgage Bankers Association (MBA) Refinancing Index rose to 3298.3 for the week ending Feb. 13, which is a 6.4% increase relative to the previous weeks’ showing of 3099.1.

The rise in the Index reflects the large extended drop in mortgage rates, said Citigroup Global Markets in a report released this morning. Analysts also noted that weekly average mortgage rates dipped by roughly 10 basis points.

JPMorgan Securities, which had anticipated an unchanged Index, expects next week’s non-seasonally adjusted Refinancing Index to be close to 2600 (down approximately 20%) because of Presidents’ Day.

As of yesterday, rates were about 35 basis points above last year’s June lows, a similar number to levels last seen in the mid July 2003. Citi expects the Freddie Mac Survey Rate to drop to about 5.60% when it comes out tomorrow.

“We estimate that at current rates roughly 43% of the mortgage universe is refinancible which compares to 80% last June,” wrote analysts from Citi. They added that for the share of refinancible mortgages to reach levels seen last June, rates would have to dip by about 70 basis points.

Meanwhile, the seasonally-adjusted MBA Purchase Index increased to 413.9, rising approximately 2.9% week over week from 402.2 last week.

In terms of prepayments, Citi anticipates aggregate speeds to rise to approximately 22% CPR. More specifically, analysts expect speeds for newer cuspy premium collateral to rise considerably since rates during January and the start of February presented the first refinancing opportunity for a considerable part of 2003 collateral. Februaryspeeds for more seasoned higher premiums should be coming in flat.

Citi said that this is due to the longer lags between application and closing for seasoned collateral, a factor that will probably push closings into March, thus deferring the effects of the latest spike in refinancing activity. For March, analysts expect a more equally distributed increase which will be mainly driven by a considerable rise in the number of business days in March versus February.

Meanwhile, JPMorgan said that it expects a significant pick-up in cusp speeds in the March report (which reflects February activity), with higher premiums and seasoned vintages merely exhibiting modest increases. For instance, analysts think that 30-year 5.5s will increase by 35% to 40%, 6s by 20% to25%, and 6.5s to increase 5% to 10%. An increase in the average size of a refinanced loan as well as signs of burnout suggest that a majority of the prepayment acceleration will be in 5.5s.

Analysts also predict that GNMA 30-year collateral will continue to season quicker compared to their conventional counterparts, as rising buyouts and the new GNMA hybrid ARM program seem to be driving speeds.

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