Mortgage application activity rose 4.1% in the week ending Dec. 9 due solely to a jump in refinancing activity as mortgage rates declined.

The rate on 30-year conforming loans fell to 4.12% from 4.18%; Jumbo loan rates to 4.47% from 4.52%, and Federal Housing Administration rates to 3.94% from 3.98%. All were at their lowest level for 2011.

The Mortgage Bankers Association (MBA) reported its Refinance Index rose 9.3% to 3573.7, its highest level since early November. As a percent of total applications, refinance share surged to 79.7%, its highest level for 2011, from 76%. The MBA's press release did not indicate refinance application activity related to Home Affordable Refinance Program or HARP 2.0.

Despite the increase, the Refinance Index remains well below its high of the year of 4866.7 reached in mid-August when mortgage rates were at 4.32% after dropping from over 4.5% to 5.0% area experienced since December 2010.

The inability of the Refinance Index to make new highs as mortgage rates trend lower has been a much-discussed topic in the outlooks for 2012. There are several reasons for this such as fewer conventional loans outstanding, burnout, less competition from mortgage brokers, many borrowers having at least one delinquency in the past year, wide spreads between primary and secondary rates, among other things.

Even with HARP 2.0 and the prospect of lower rates associated with the third round of quantitative easing, many expect no change to this trend. Nomura Securities analysts stated that, "Unless lenders become very aggressive at refinancing borrowers due to the changes in HARP 2.0, we expect this trend to continue as burnout becomes more pronounced in 2012."

Deutsche Bank Securities analysts agreed since "servicing goes in 2012, so goes refinancing."
Meanwhile, the Purchase Index reversed out most of last week's increase, falling 8.2% to 190.9.

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