Drop in the number of Refi applications.

Refinancing applications surprisingly dropped last week, despite the fact that primary mortgage rates indicators remained stable or declined. The MBA's refi index dropped by more than 20% week/week, and reported at its lowest level since the week ending March 13th (before the Fed's announcement of its Treasury purchase program). Application activity softened in spite of a drop in the Freddie Mac survey rate, which matched its all-time low of 4.78%.

There could be three possible causes for this decline in Refi applications:

1) the MBA's report is an aberration (possible);
2) the posted averages for mortgage rates are understating the actual rates quoted borrowers (unlikely); and/or
3) Borrowers are being told that they can't refinance due to credit or equity issues (likely).

If the last factor is the culprit, it means that the primary mortgage market is beginning to exhaust the available population of borrowers that have the credit, means, and equity to refinance. Lenders and brokers should keep an eye on these numbers over the next month or so, as it could be a good leading indicator of how robust activity will be as we approach the summer.