Mortgage applications fell sharply last week, according to a long-standing index traditionally used by prepayment researchers on Wall Street. The Mortgage Maxx Advance Factor Service reported that overall application activity fell 7.8 percent to 137.2 during the week ended May 30. That drop in activity is adjusted for seasonality and the holiday-shortened business week; unadjusted, the index would have been down 26.2 percent to 109.7, the company reported. To put these numbers in perspective, the index reached its highest point in over two years of tracking during January 2008 -- hitting 232.5 for the week ended Jan 25; January's high-water mark came after the series hit its low point at the end of December 2007. "With a non-existent refi arbitrage and discouraging qualifying impediments, mortgage applications will remain under severe pressure," said Paul Descloux, publisher of what industry participants call the "the Max." The Max application index was introduced in April 2006 as a complement to Mortgage MAX AFS's monthly prepayment projections based on title searches, loan application surveys and other data sources. It also corrects for multiple applications, which can skew actual loan demand under current tight credit conditions -- critical information for investors and MBS researchers. While over time, both the better-known application index published by the Mortgage Bankers Association and the Max end up directionally similar, the timing of application movements can differ somewhat drastically from one week to the next between the two. For MBS investors determining how to price securities, the timing of repayment effects is a critical component of valuing mortgage bonds.