Although the Fed agency MBS purchase program could be considered successful — with mortgage spreads to Treasuries approaching their narrowest levels in this past month  and housing affordability reaching record levels— JPMorgan Securities analysts said that there are few borrowers that have actually refinanced into the historically attractive rates that are available.

Analysts said that even before last Wednesday’s sell-off, refinancing activity was showing signs of decline. Last week’s application index (week ending 5/22) dropped 20% to under 4,000. Additionally,  before the sell-off,  the 30-year mortgage universe had 100 to 125 basis point rate incentive, however,  the index seems to have “burnt out” just after six weeks. This is despite primary/secondary rates narrowing.   The Obama administration has also helped agency borrowers to remove or reduce appraisal, PMI and underwriting requirements to increase pull-through rates and prepayment speeds. Despite these,  prepayment rates are roughly 10 CPR under what JPMorgan analysts expected the market to produce.

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