Mortgage applications rose again last week with continued gains in refinancing activity. The Mortgage Bankers Association said its market composite index increased 5% on a seasonally adjusted basis for the week ended Jan. 14. Unadjusted, the index climbed 6.4% from the prior week. While the number of refinancing applications declined steadily during the end of 2010 until the last week of the year, activity rose the first week of this year and again last week with a 7.7% gain, according to the MBA. The seasonally adjusted purchase index fell 1.9% last week while the unadjusted purchase index rose nearly 3.1% from the prior week and was 16% lower than a year earlier. In four-week moving averages, the market index is up 1.4%, with the purchase index off 0.8% and the refinance index up 2.3%. “Mortgage rates have moved somewhat lower since the beginning of the year, as mixed data on the job market continue to cloud the outlook for the economy,” said Michael Fratantoni, MBA vice president of research and economics. “Refinance applications have picked up, as borrowers take advantage of lower rates, but purchase applications remain quite low, indicating that home sales are unlikely to pick up any time soon.” The MBA said the average interest rate for a 30-year fixed mortgage inched lower to 4.77% last week from 4.78% the prior week. The average rate for a 15-year fixed mortgage rose slightly to 4.16% from 4.15%. Refinancing activity rose slightly last week, accounting for 73% of all mortgage applications up from 72.1% the previous week. When interest rates hovered around 4% in the fall, refinancings were accounting for more than four-fifths of all mortgages. Scott Buchta, head of investment strategy at Braver Stern Securities, said the “rise in refinancing applications reflects noise in the 5.0% coupon, especially given the proximity of these loans to the current 5.01% effective mortgage rate.” “One thing to think about when looking at the future prepayments of the 5.0% coupon would be the impact of (loan-level price adjustment) fees on the marginal borrower,” Buchta said. “Traditionally, it was assumed that the typical borrower exhibited a greater propensity to refinance with 40bp or more of economic incentive. Higher closing costs may have moved this elbow into the 50-60bp range and when coupled with higher LLPA fees many 5.0% borrowers are now out of the refinancing window.” Write to Jason Philyaw.

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