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Last week we told you that European strife was giving life to American mortgage refinancing activity. This week, even lower mortgage rates extended the streak of American benefit from the distress of Europe, with refinancing activity marking its third consecutive increase. The driver is of course record low mortgage rates, which are following treasury rates lower due to a flight to the quality of U.S. treasuries. It's the result of political upheaval in Europe on the implied rejection of austerity measures and euro zone inclusion in Greece, and general discontent across a struggling region.

The Mortgage Bankers Association (MBA) reported today that its Market Composite Index of mortgage application activity increased 3.8% in the week ending May 18, 2012. The activity was once again driven by record low mortgage rates, with the MBA's Refinance Index gaining 5.6% against the prior week. The trend we are highlighting here is best seen in the four-week moving average, which gained 4.8% this week. Also, the refinance share of mortgage activity grew to 76.6% from 74.9%. Except for jumbo rates, mortgage rates fell to historically low levels last week, fueling the continuation of the cost saving refinancing measure for an increasing number of Americans.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.93 percent, from 3.96 percent. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.73 percent, from 3.75 percent. The average contract interest rate for 15-year fixed-rate mortgages remained unchanged at 3.26 percent, from 3.26 percent. Each loan type reported its lowest rate in the history of the record. Also, effective rates decreased for each of these loan types after adjustment for points. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 4.25 percent from 4.20 percent. This is complementing activity already spurred by the government's Home Affordable Refinance Program (HARP) for Fannie Mae (OTC: OTCQB:FNMA) and Freddie Mac (OTC: OTCQB:FMCC) sponsored loans, as HARP activity was unchanged at 28% of refinancing activity.

We should note that the celebration did not extend to support growth in home buying, despite the latest reports of growth of existing home sales and new home sales. By the way, those reports only showed modest increase and cover April, a period now passed. In this latest period, mortgage applications for the purchase of a home decreased 3.0% on a seasonally adjusted basis against the prior week. Also, the four-week moving average for Purchase Activity is only up 0.17%.

It's a real shame, what's happening in Europe, but Americans should take advantage of this opportunity to lower their cost of debt if they can and while they can. The shares of financial sector issues are down today, though, on the fear of the financial and economic contagion that might arrive from Europe. The Financial Select Sector SPDR (NYSE: XLF) is lower more than 1%, and the shares of major mortgage lenders Bank of America (NYSE: BAC), J.P. Morgan Chase (NYSE: JPM), Wells Fargo (NYSE: WFC), Citigroup (NYSE: C) and U.S. Bancorp (NYSE: USB) are each down 1% to 3%. The action in these relative to the mortgage market stocks are telling me something. It's the same thing consumers and purchasing managers are saying. I would suggest those who stand to benefit from mortgage refinancing act quickly, as this window of opportunity might prove fleeting if/when that contagion I just mentioned begins infecting our economy in a tangible way. Follow my stream of thought via my column here.

Source: European Strife Gives America Life