By Mike Colpitts
Fueled by record low mortgage rates, refinances soared for the third straight week as consumers applied for new home mortgages to take advantage of lower 
mortgage payments, according to the Mortgage Bankers Association.
The jump in refinancing, which rose 5.6% for the week ending May 18, is being sparked by the lowest mortgage rates in history. The average rate on a finalized 30-year fixed loan fell to 3.93%, down three basis points from the prior week on 80% loan to value mortgages.
The bankers’ purchase index also saw a decline for the week, falling by 3.0% to the lowest point since April 20th. The index shows that more purchasers are turning out to buy new and resale homes as the summer home buying season nears. The National Association of Realtors reported that home sales increased during April in its monthly report yesterday.
The rise in both indices indicates that a housing recovery is developing in the U.S. but since the annual rate of sales is lower than what analysts consider healthy it will take a greater volume of sales for the market to be considered in a full recovery. An annualized sales rate of about 6-million home sales a year is considered to be healthy by most real estate economists.
Economic pressures over developments in the sovereign debt crisis in Europe helped to send U.S. Treasury rates lower for the week, which in turn caused mortgage rates to drop to new record lows.
“Mortgage rates again dipped to new record lows in the survey, which spurred more borrowers back into the refinance market,” said MBA chief economist Michael Fratantoni. “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%, so it was not the primary driver of the increase over the previous week.”
The average contract mortgage rate on 15-year fixed rate loans signed by a borrower remained unchanged at 3.26% from a week ago, the lowest in the history of the survey.
The rate for 5/1 adjustable rate mortgages rose to 2.83% from 2.80% a week earlier, with points increasing to 0.42 from 0.37 (including the origination fee) for 80% LTV loans. The ARM share of home loans made up only 5.0% of all applications, according to the bankers’ survey, which accounts for about three-quarters of U.S. home loans.