Headlines on Wednesday will note that mortgage applications tanked last week, citing data released by the Mortgage Bankers Association, which show that composite applications (purchase and refinance transactions) fell by a whopping 10.6 percent. The MBA's composite index registered 591.4 for the week ended Sept. 19, down sharply from 661.7 one week earlier. The application index is calibrated to March 16, 1990; a reading of 591.4 means that application activity was roughly 6.6 times greater than when the index was first established. Refinancing and purchase activity suffered last week as mortgage rates soared during one of the most tumultuous weeks in U.S. financial market history; refinancing application volume fell 11.2 percent, the MBA said, while purchase application activity dropped 10 percent from one week earlier. Even FHA loan applications, one of the few strengths in the current mortgage market, tumbled by 8.9 percent. Conflicting data Yet, as has been the case throughout this mess, different data sources end up showing wildly different conclusions; in this case, a separate application index maintained by Mortgage Maxx LLC -- called the MAX -- found that applications actually rose slightly during the week of Sept. 19, up 0.3 percent. The MAX index data has traditionally been used by prepayment researchers on Wall Street, as it corrects for multiple applications by one borrower -- allowing for a more accurate read on forward demand for mortgages (borrowers may apply numerous times, but will end up with only one mortgage). It's enough to leave analysts scratching their heads. After all, the two indices often vary in magnitude, but not in direction. Worse yet, it's usually the case that the MBA index overstates demand: in good times, borrowers shop for the best mortgages, while in bad times, borrowers scramble to find a mortgage they can be approved for. All of which means that seeing the MAX data suggest a flat application trend on a week when the MBA data shows a sharp decline is enough to confound even the most experienced MBS analyst. "The only explanation I can think of is that borrowers gave up last week, or for some other reason decided to slow the multiple application train," said one source, an analyst that spoke with HW on condition of anonymity. "Instead of applying everywhere and praying they got a mortgage, borrowers may have applied at one place and given up if they weren't approved." That's just a guess, of course, but it underscores a much larger point about just how difficult prepayment modeling -- a critical component for mortgage pricing -- really is in the current environment. For more information, visit http://www.mortgagebankers.org or http://www.mortgagemaxx.us.