While some analysts viewed the decline in the MBA Refinancing Index last week with some skepticism, others say that borrowers with incentive to refinance have already done so earlier in the month, and that with rates inching up, a further decline in refinancing is anticipated for this week's results.

The Refinancing Index declined last week to 1556.2 from the previous week's reading of 1749.9. This is despite the fact that, according to a report by Lehman Brothers, secondary mortgage rates were largely unchanged from the prior week. A further surprise was that the Purchase Index dipped to 356.5 for the week ending May 10, from previously being at 382.7.

"We are inclined to view these numbers with skepticism because even the purchase indices dropped sharply at a time when the purchase activity should be grinding towards its peak," said Lehman analysts. "A four-week moving average of the Refinancing Index remains above 1500 and close to the levels implied by our short-term prepayment projections."

Lehman added that the four-week moving average of the Refinancing Index remains above 1500, which is close to the levels suggested by the firm's short-term prepayment projections.

Some analysts said that the drop in the Index was not really significant. They added that what happened was a disproportionate number of borrowers took advantage of the lower rates in the first week of May/end of April. Then in the second week of May - aside from the fact that rates did not really move that much - there were also fewer people left to trigger another significant increase in the refinancing numbers.

According to Art Frank, director of mortgage research at Nomura Securities International, Inc., if one looks at the Fannie Mae current coupon rate, it fell by 40 basis points during the month of April. At the end of April to May 10 the market was in a trading range. In the middle of the same week, the market was in the high end of the trading range with current coupon ranging between 6.25% and 6.40%.

"We actually drifted higher in the middle of the week (May8-9), so that depressed the numbers a little bit," said Frank last Wednesday. "Rates have also gone up significantly this week - 13 basis points higher since Friday (May 10)."

Frank added, if rates were to stay at those levels, the market will likely see the Index come off more this week just because rates are higher.

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