Freddie Mac reported 30-year fixed mortgage rates fell four basis points to a new record low of 3.36% with an average 0.6 point in the week ending October 4. This places the no point rate at 3.51% which provides borrowers underlying 3.5% and 4.0% coupons an attractive incentive to refi.


These coupons were hit yesterday after the Mortgage Bankers Association reported new lows in mortgage rates sent the Refi Index surging nearly 20% to 5888, its highest level since April 2009, which portends a jump in prepayment speeds in the months ahead. A further indication that the rise in activity was rate driven came from the 11% increase in the average loan size of the refi applications. Further gains in refinancing activity are likely in the next report from the MBA as a result of the historic lows.


While mortgage rates have declined since the QE3 announcement, 30-year rates are just 19 basis points lower compared to over 50 basis points for the current coupon yield as capacity constraints have limited lenders from lowering primary rates as fast. Morgan Stanley analysts pointed out in research that there are signs that mortgage lenders are adding capacity based on data from the Bureau of Labor Statistics (BLS). They say investors should keep an eye on the MBA's Refi Index and the primary-secondary spread in regards to prepayment risk.


New lows were also reported for 15-year and one-year ARM rates at 2.72% and 2.57%, respectively, versus 2.73% and 2.60% last week. Meanwhile, 5/1 hybrid ARM rates rose one basis point to 2.72%.



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