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Refi Share to Plunge

Mortgage rates eased, though some signs point to an increase. The jumbo mortgage spread, however, worsened. Mortgage activity declined, and refinance share is projected to drop by two-thirds this year.

The average 30-year fixed-rate mortgage declined 4 basis points from a week earlier to 4.93% in the Freddie Mac Primary Mortgage Market Survey for the week ended Feb. 18. The 30-year was 11 BPS better than during the same week in 2009.

Over the longer term, Freddie sees the 30-year averaging 5.0% this quarter and rising to 5.7% by the fourth quarter.

The average conventional 30-year rate was unchanged from the previous week at 4.875% in the Mortgage Market Index for the week ended Feb. 17 — which was based on 119,049 pricing inquiries at Mortech Inc. But the 30-year jumbo rate rose to 6.000% from 5.750% last week, pushing the jumbo spread to 1.125% over the conventional 30-year from last week’s 0.875% spread.

Freddie reported the average 15-year fixed-rate mortgage at 4.33%, one basis point below last week. The conventional 15-year was unchanged at 4.25% in the report.

The yield on the 10-year Treasury bond, which mortgage rates tend to follow, was 3.799% during trading today, according to The 10-year was 3.73% when the market closed a week earlier, according to the U.S. Department of the Treasury. The movement suggests rates will be higher in next week’s reports — though similar activity last week was followed by this week’s decline in mortgage rates.

No change can be expected in mortgage rates over the next 35 to 45 days based on nearly three-quarters of the panelists surveyed by for the week Feb. 18 to Feb. 24. Over a quarter predicted rates will rise at least 3 BPS, while none forecasted a decline.

The five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 4.12% in Freddie’s survey, falling 0.07% from seven days earlier.

The one-year Treasury-indexed ARM declined 10 BPS to 4.23%, Freddie’s survey indicated. The one-year was 4.80% in 2009. Freddie projects that the one-year will average 4.3% in the first quarter and reach 4.6% by the final quarter of 2010.

The underlying index for the one-year ARM, the yield on the one-year Treasury note, was 0.35% yesterday, lower than 0.38% a week ago, according to the Treasury. The six-month London Interbank Offered Rate was 0.39% as of yesterday, unchanged for the week, reported.

In the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ended Feb. 12, ARMs accounted for 4.4% of activity, edging down from 4.5% one week prior.

Freddie predicts ARM share will be 4% of total first-quarter originations and rise to 6% in the fourth quarter.

The Mortgage Market Index declined to 31 inquiries-per-user from the prior week’s 35. The average U.S. loan amount was $207,754, off from $210,624 seven days prior. Washington, D.C.’s, $299,465 average was highest, followed by $274,789 in Massachusetts and $260,986 in New Jersey. The lowest average loan amount was in West Virginia: $144,974.

In MBA’s report, which reflects last week’s activity, the Market Composite Index eased 2% on a seasonally adjusted basis from the previous week.

The total refinance share in the report fell to 45% from 48% a week prior. The latest share included a rate-term share of 31% and a cashout share of 14%.

Refinances nudged down 1% in MBA’s survey, leaving refinance share at 69% compared 70% a week earlier. Purchases were down 4%.

Nearly two-thirds of first-quarter applications are projected to be for refinances, according to Freddie — which sees refinance share falling to just one-quarter by the end of the year.

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