The Mortgage Bankers Association (MBA) Seasonally Adjusted Refinancing Index broke a record again Wednesday morning when it jumped 12.9% to an all-time high of 9977.8. It went up from 8840.9 last week. The prior record of 9387.0 was set March 12.

Reports said that this week's number was adjusted for the Memorial Day holiday and that without the adjustment, the Index would have shown a 10% decrease in activity for the week. Analysts said that the record-breaking reading on the Index corresponds to the 5.45% 30-year fixed mortgage rate seen the week of May 15.

Kevin Jackson, vice president at RBC Dain Rauscher, said that the Refi Index is poised to hit 10,000 over the next week or two. This reflects the 5.31% mortgage rate seen last week. Jackson said that if the Refinance Index results are any indication of upcoming prepayment activity — as it is typically — then the market is in for huge pay downs in the next few months.  He added that with over $1.5 trillion conventional MBS now eligible to refinance, the record portfolio liquidations should continue.

He also stated that prepayment protection and par priced bonds should remain the trades of choice in the current environment. The best strategies include 15- and 30-year LLB 5.0% to 6.5% (prepayments have been 75% slower than generics historically) and slow geographic areas, such as NY, HI, PR, LA, AL, and the Dakotas (which have prepaid 60% slower than generics).

JPMorgan Securities also expects the Refinancing Index to remain at the over 9500 level in the next two weeks. Prepayments in May, to be released late tomorrow, may be slower than earlier projected as fall-out activity delays closings, said analysts. However, the firm stated that any consequent tightening in premium mortgages or new 15-year cusps will probably be short-lived. "We believe that fall-out acitivty stemming from the rally since mid-March has pushed closings into June/July," wrote analysts. "We expect that peak speeds are likely to be about 25% to 50% faster than April speeds on 30-year 6s and 5.5s." They added that 15-year new cusp securities will probably be vulnerable to prepayments.

Meanwhile, the MBA’s broader Market Composite Index reached an all-time high as well, jumping 13.6% to 1856.7 from 1634.6 last week. New records were also set for the MBA’s Purchase Index. The MBA seasonally adjusted Purchase Index rose to 460.5 from 395.7 the prior week. The previous record of 416.0 was set in the week ending May 2.

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