A slight downturn in mortgage interest rates during the week ended August 5 was more than matched by a surge in mortgage activity.  Once again it was refinancing that drove most of the across-the board increase in application volume as measured by the Mortgage Bankers Association (MBA) Market Composite Index.

The Composite index increased 7.1 percent on a seasonally adjusted basis from the week ended July 29 and 7.0 percent on an unadjusted basis.  It was the first time the adjusted index had gained ground since the week ended July 8.

The Refinancing Index jumped 10 percent from the previous week and the share of applications that were for refinancing advanced from 60.7 percent a week earlier to 62.4 percent.  The Conventional Refinance Index was up 6 percent and the Government Refinance Index jumped 27 percent.

"It might seem like refi apps increased more than is justified by the drop in rates, but it actually makes fairly good sense if we break down the timing," notes Mortgage News Daily's Matt Graham.  "At the end of July, rates dropped at the end of the week, in response to Wednesday afternoon's Fed Announcement.  That only left 2 days for rates to impact refi numbers, thus setting a lower bar for this week's numbers.  With rates near recent lows on August 1st--especially government rates--and the employment report on Friday being a well-known source of volatility, there was plenty of motivation to get those apps in."

Applications for purchase mortgages also rose.  The seasonally adjusted Purchase Index was up 3 percent from the previous week and unadjusted it was up 2 percent for the week and was 13 percent higher than during the same week in 2015.

The FHA share of total applications increased to 10.0 percent from 9.4 percent the previous week and the VA share rose to 13.0 percent from 12.1 percent. USDA applications had a 0.6 percent share compared to 0.7 percent a week earlier.

While most contract interest rates eased back, the changes were small.  The effective rate declined for all except the jumbo 30-year fixed rate mortgage (FRM).

The average contract interest rate for 30-year FRM with conforming loan balances ($417,000 or less) decreased to 3.65 percent from 3.67 percent.  Points increased to 0.34 from 0.30

The jumbo 30-year FRM (loans with balances greater than $417,000) decreased to 3.64 percent from 3.65 percent.  Points rose from 0.24 to 0.31.

The average contract interest rate for 30-year FRM backed by the FHA was 3.52 with .0.33 point.  The prior week the rate was 3.54 percent, with 0.32 point. 

The 15-year FRM rate remained unchanged at 2.93 percent.  Points decreased to 0.34 from 0.36

The share of applications that were for adjustable rate mortgages (ARMs) remained frozen at 4.7 percent for the fourth consecutive week.  The average contract interest rate for 5/1 ARMs decreased 9 basis points to 2.81 percent with points increasing to 0.32 from 0.24.

MBA's data is derived from its Weekly Mortgage Applications Survey which has been conducted since 1990.  The survey covers over 75 percent of all U.S. retail residential mortgage applications with respondents that include mortgage bankers, commercial banks and thrifts. Base period and value for all indexes is March 16, 1990=100 and interest rate data assumes a mortgage with an 80 percent loan-to-value ratio and points that include the origination fee.