DEFINITION of 'MBA Refinance Index'

A weekly measurement put together by the Mortgage Bankers Association, a national real estate finance industry association, to predict mortgage activity and loan prepayments based on the number of mortgage refinance applications submitted. Reported every Wednesday, the MBA Refinance Index measures the number of refinance applications submitted; it does not measure the number of refinance loans that are actually closed. The MBA Refinance Index reports the new weekly index number and the percentage change from the previous week’s number, as well as the index’s four-week moving average.

BREAKING DOWN 'MBA Refinance Index'

Homebuilders care about the MBA Refinance Index because it is a leading indicator of home sales. Mortgage investors care about it because it is a leading indicator of mortgage prepayment activity. Economists follow the refinance index because an increase in refinancing when interest rates are decreasing can give consumers more money to spend in other areas, which can benefit the overall economy. Factors that can affect the index include mortgage interest rates, 10-year bond rates and home prices.
 
When the refinance index indicates an increase in refinance activity, it can be bad news for investors of mortgage-backed securities. Homeowners who refinance are prepaying their original mortgages. Mortgage investors thus lose investments that pay a higher interest rate and see them replaced by investments that pay a lower interest rate.
 
A related index, the MBA Purchase Index, measures home loan applications for buying a home rather than for refinancing. Unlike the purchase index, the refinance index is not seasonally adjusted because seasonality does not affect refinance activity the way it affects purchase activity. The MBA Refinance Index, along with the MBA Purchase Index, make up the market composite index. Conducted since 1990, this index is based on a survey of mortgage lenders covering 75% of housing application activity.

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