Rates for both short- and long-term mortgages tumbled last week according to Freddie Mac's Primary Mortgage Market Survey.

The 30-year fixed-rate mortgage (FRM) dropped to an average of 6.26 percent with 0.6 point for the week ended July 17. The previous week the 30-year averaged 6.37 percent also with 0.6 point.

The 15-year FRM averaged 5.78 percent with 0.6 point, down from the previous week when it averaged 5.91 percent with 0.6 point.

The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) carried an average interest rate of 5.80 percent, 2 basis points below the average a week earlier. Points averaged 0.6 both weeks.

One-year Treasury-indexed ARMs averaged 5.10 percent with 0.6 point compared to 5.17 percent with 0.5 the week before.

"Mortgage rates fell this week amid market speculation that the Federal Reserve (Fed) may not raise the overnight bank-lending rate this year after all," said Frank Nothaft, Freddie Mac vice president and chief economist. "Some of the factors motivating the change in market perceptions this week included retail sales for June rising at the slowest pace since February and consumer sentiment in July holding at low levels not seen since 1980.

"In addition, in his July 15th semi-annual testimony before Congress, Fed chairman Bernanke indicated that the FOMC participants had considerable uncertainty surrounding their outlook for economic growth."

The Mortgage Bankers Association (MBA) released the results of its Weekly Mortgage Applications Survey for the week ended July 18 on Wednesday. Mortgage activity as measured by the volume of loan applications dropped 6.2 percent from a week earlier when seasonally adjusted and 6.1 percent unadjusted. Volume was down 19.6 percent from the same week in 2007.

Interest rates in the MBA survey were up, increasing to 6.59 percent with 1.05 points (including the origination fee) from 6.22 percent with 1.21 points for the 30-year FRM.

15-year fixed-rate mortgages increased 36 basis points to 6.10 percent with points decreasing to 1.11 from 1.13.

One-year ARMs were unchanged at 7.16 percent with points decreasing from 0.36 to 0.29.

Refinancing as a share of all mortgage activity increased to 39.4 percent from 39.2 percent the previous week while adjustable-rate mortgages generated only 8.5 percent of all mortgage applications compared to 9.1 percent a week earlier.

But interest rate trouble may be lurking in the wake of Fannie Mae and Freddie Mac's problems.

As we have seen time after time, market rates for mortgages can vary widely depending on the nature of survey respondents. Freddie Mac's weekly survey is conducted primarily among lenders dealing in conforming paper while the larger data collection by MBA tends to include a wider variety of lenders and loans.

Now financial publisher HSH Associates is reporting, based on its weekly survey of 2000 lenders, that home loan rates are approaching their highest levels in five years and the average rate for jumbo loans which cannot be sold to Freddie or Fannie was 7.8 percent, the highest since December 2000. Average rates for 30-year FRMs rose to 6.71 percent on July 22 from 6.44 percent the previous Friday.

HSH said that bond investors, worried about the two government sponsored enterprises (GSEs) are driving up rates on their debt and the added cost is being passed on to consumers through the mortgage markets. The rate increase in the last few days alone would add $852 a year to the mortgage payment on a $400,000 loan.

The company said that the rate increases are adding to the pressures on the housing market, making it harder and more expensive to refinance or to buy a home and urged greater urgency in the government's efforts to restore confidence in the two mortgage giants.