The Mortgage Bankers Association (MBA) credited record low interest rates for third consecutive increase in refinancing during the week ended May 18.  According to its Weekly Mortgage Applications Survey, the Refinancing Index increased 5.6 percent from the previous week to reach the highest level since February 10.  Refinancing applications comprised 76.6 percent of the total volume of applications during the week compared to 74.9 percent the week ended May 11.

The increase in demand for refinancing pushed the seasonally adjusted Market Composite Index which measures overall mortgage loan application volume, up 3.8 percent.  The unadjusted index increased 3.3 percent.  The seasonally adjusted Purchase Index fell by 3.0 percent from one week earlier and the unadjusted Purchase Index was down 3.6 percent from the previous week and was 4.2 percent lower than the same week one year ago.

 "Continuing negative developments in the sovereign debt crisis in Europe, particularly in Greece and Spain, as well as the recent French elections, which have shifted political power in a manner that will likely show less support for European austerity, helped push the US 10 Year Treasury yield below 1.7 percent last week," said Michael Fratantoni, MBA's Vice President of Research and Economics.  "Mortgage rates again dipped to new record lows in the survey, which spurred more borrowers back into the refinance market.  As a result, applications for refinance loans have increased for the third straight week and are at the highest level since February of this year.  The HARP share of refinance applications was essentially unchanged over the week at 28 percent, so it was not the primary driver of the increase over the previous week." 

The four week moving average for the seasonally adjusted Market Index was up 3.72 percent.  The four week moving average was up 0.17 percent for the seasonally adjusted Purchase Index and 4.83 percent for the Refinance Index.

Purchase Index vs 30 Yr Fixed

Refinance Index vs 30 Yr Fixed

The average contract interest rate for 30-year fixed-rate mortgages (FRM) with conforming loan balances ($417,500 or less) was at the lowest rate in the history of MBA's survey, 3.93 percent with 0.39 point.  The previous week the rate was 3.96 percent with 0.37 point.  The effective rate decreased from last week.

The average contract interest rate for 30-year FRM backed by the FHA decreased to 3.73 percent, the lowest rate in the history of the survey, from 3.75 percent, with points decreasing to 0.57 from 0.66.  The effective rate decreased from last week. The share of purchase loan applications for FHA and other government-backed loans decreased over the week from 36.3 percent to 36.2 percent of all purchase applications, the second lowest government purchase share since March 27, 2009.

Despite record low rates for conventional and FHA-backed 30-year FRM, not all rates fell during the week.  The average rate for 15-year FRM remained unchanged at 3.26 percent, the lowest rate in the history of the survey but points increased to 0.42 from 0.41. The effective rate decreased from last week.

Jumbo loans saw an average increase of five basis points to 4.25 percent with points increasing to 0.42 from 0.36.   The effective rate increased from last week.

The average rate of for 5/1 adjustable rate mortgages (ARMs) also increased, moving from 2.80 percent with 0.37 point to 2.83 percent with 0.42 point.  The effective rate increased from last week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.0 percent from 5.4 percent of total applications from the previous week.

All interest rates are for loans with an 80 percent loan-to-value ratio and points include the application fee.

MBA's weekly survey covers over 75 percent of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990.  Respondents include mortgage bankers, commercial banks and thrifts.  Base period and value for all indexes is March 16, 1990=100.