Mortgage Refinancing Index Drops for the Fourth Straight Week

(Bloomberg) -- The Mortgage Bankers Association’s U.S. refinancing index dropped for the fourth straight week as of April 26, bringing its aggregate fall to 31.2 percent over the past month.

This is the index’s largest drop over that time frame since the 40 percent decline seen during the four weeks ending May 31, 2013, according to data compiled by Bloomberg. The index now stands at 1228, down from 1786 at the end of March.

Still, because prepayments lag changes in mortgage rates due to the time it takes to process applications then securitize the resultant debt, the next few months are still expected to see a spike in prepayments due to the fall in rates seen earlier this year.

Bank of America Inc. MBS analysts led by Satish Mansukhani wrote in a recent report that while “the back-up in mortgage rates from the March lows eases refinancing volumes and the outlook for speeds,” the April and May prepayment reports are likely to show increases of 16 percent and 39 percent, respectively.

That may end this wave of refinancings, putting to bed one risk for mortgage investors who purchased premium priced securities. Scott Buchta, head of fixed income strategy at Brean Capital LLC, wrote last week, “at this point, we expect prepayment speeds in conventionals to peak in May and begin slowing down precipitously in June, especially in the cuspy 4 and 4.5 percent coupons.”

Mortgage Refinancing Index Drops for the Fourth Straight Week

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