The rally in mortgage application volume that sent several of the Mortgage Bankers Association's (MBA's) metrics to recent highs at the end of March faded last week as interest rates reversed course.  The unexpected boom in refinancing ratcheted down, and purchase applications returned to more modest gains.

MBA said its Market Composite Index, a measure of loan application volume, declined by 5.6 percent on a seasonally adjusted basis during the week ended April 5, erasing the about a third of the previous week's gains.  The index was down 5 percent on an unadjusted basis.

The Refinance Index, which had risen a nearly unprecedented 39 percent the prior week, pulled back by 11 percent and the share of total applications that were for refinancing declined to 44.1 percent from 47.4 percent the week before. That share was still at levels not seen since early January.

Both the seasonally adjusted and the unadjusted Purchase Indices increased 1 percent from the week ended March 29.  The unadjusted index was 13 percent higher than the same week one year ago.

Refi Index vs 30yr Fixed

Purchase Index vs 30yr Fixed

"Mortgage rates inched back up last week, but remain substantially lower than they were in the second half of last year," said Mike Fratantoni, MBA Senior Vice President and Chief Economist. "As quickly as refinance activity increased in recent weeks, it backed down again in response to the rise in rates. However, this spring's lower borrowing costs, coupled with the strong job market, continue to push purchase application volume much higher. Purchase applications are now up more than 13 percent compared to last year at this time."

The FHA share of total applications popped back to 9.6 percent after falling to 8.8 percent the prior week and the VA share increased to 11.1 percent from 10.4 percent, The USDA portion of applications remained at 0.6 percent for yet another week.  The average loan size dropped from $381,200 to $352,100 and the typical purchase loan amount rose by just under $6,000 to $336,000.

Contract and effective mortgage interest rates increased during the week for all fixed rate mortgage products. The average contract interest rate for 30-year fixed-rate mortgages (FRM) with loan balances at or below the conforming limit of $484,350 increased to 4.40 percent from 4.36 percent.  Points bumped up to 0.47 from 0.44.    

The rate for 30-year FRM with jumbo loan balances higher than the $484,350 conforming limit increased to 4.28 percent from 4.21 percen.  Points rose to 0.28 from 0.25.

FHA backed 30-year FRM had an average rate of 4.42 percent compared to 4.41 percent the previous week.  Points were unchanged at 0.48.

Fifteen-year FRM had an average rate of 3.83 percent, up 5 basis points week-over-week.  Points rose to 0.42 from 0.40.

The average contract interest rate for 5/1 adjustable rate mortgages (ARMs) increased to 3.78 percent from 3.77 percent.  Points dropped to 0.26 from 0.38, bringing the effective rate lower.  The ARM share of activity decreased to 7.6 percent of total applications from 9.5 percent the prior week.

MBA's Weekly Mortgage Applications Survey been conducted since 1990 and covers over 75 percent of all U.S. retail residential applications Respondents include mortgage bankers, commercial banks and thrifts.  Base period and value for all indexes is March 16, 1990=100 and interest rate information is based on loans with an 80 percent loan-to-value ratio and points that include the origination fee.