Mortgage rates in general took a fairly substantial dive during the previous week with longer term rates dropping double digits in most cases and some rates returning to mid-2006 levels. However, the Mortgage Bankers Association reported a spectacular increase in the interest rate of the one-year adjustable rate mortgage (ARM).

Freddie Mac reported in its Primary Mortgage Market Survey that the 30-year fixed-rate mortgage (FRM) averaged 6.52 percent with 0.4 point for the week compared to 6.62 percent with 0.4 point during the week ended August 16. This is the lowest the 30-year has been since May 31 when it averaged 6.42 percent. One year ago this product averaged 6.48 percent.



The 15-year FRM dropped 12 basis points to an average of 6.18 percent with 0.5 point. One year ago the 15-year also averaged 6.18 percent.

The five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 6.34 percent this week, with an average 0.6 point, down from last week when it averaged 6.35 percent with 0.5 point. A year ago, the 5-year ARM averaged 6.14 percent.

"Interest rates on conforming long-term fixed-rate mortgages and one-year adjustable rate mortgages trended down by about one-tenth of a percent in the past week," said Frank Nothaft, Freddie Mac vice president and chief economist. "This is as a result of yields on Treasury securities coming down, and the Fed's decision to cut the discount rate by half a percent to 5.75 percent last Friday.

"Additionally, economic indicators released in the past week reflect slowing housing activity in July. Last month's housing starts dropped to the lowest level since January 1997 at an annualized pace of 1.38 million units, while one-unit housing starts experienced the fourth consecutive month of decline. Building permits also fell to the lowest level in nearly 11 years, and the number of one-unit permits issued was at the lowest since June 1995."

None of the information presented by Freddie Mac explains why the interest rate on the one-year ARM as reported by MBA went straight through the roof. The Weekly Mortgage Applications Survey pegged the average interest rate on this product at 6.51 percent with 1.0 points (including the origination fee) compared to 5.84 percent with 1.05 point last week. MBA provided no interpretive commentary for this unusual spike.

Longer-term interest rates fared better. The 30-year FRM rate decreased to 6.41 percent from 6.49 with points remaining at 1.48 and the 15-year FRM dropped 10 basis points to 6.10 with points increasing to 1.19 from 1.10.

Application volume declined 4 percent on a seasonally adjusted basis and 5.3 percent unadjusted when compared to the previous week, however activity was up 10.6 percent compared with the same week in 2006.

Refinancing as a share of all mortgage activity increased to 40.4 percent from 39.9 percent and adjustable rate mortgages accounted for only 15.0 percent of all mortgage applications compared to 18.6 percent the previous week.