Mortgage rates declined again during the week ended August 2 according to the Weekly Mortgage Market Survey conducted by Freddie Mac and the week ended August 3 per the Weekly Mortgage Applications Survey released by the Mortgage Bankers Association.

Freddie Mac's report indicted that the 30-year fixed-rate mortgage (FRM) decreased from 6.69 percent with 0.4 point to 6.68 percent with 0.3 point. This is 5 basis points higher than the 30-year interest rate one year ago.

The 15-year FRM declined 5 basis points to 6.32 percent with 0.3 point. Last week fees and points averaged 0.4. The rate is also 5 basis points higher than the same week in 2006.



The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 6.29 percent this week, down from last week when it averaged 6.30 percent. Fees and points increased from 0.4 to 0.5. A year ago, the 5-year ARM averaged 6.27 percent.

One-year Treasury-indexed ARMs carried an average contract interest rate of 5.59 percent with 0.5 point. Last week it averaged 5.69 percent also with 0.5 point. At this time last year, the 1-year ARM averaged 5.69 percent.

Frank Nothaft, Freddie Mac vice president and chief economist speculated that "Market investors seeking safety from the subprime fallout bought Treasury securities, pushing bond yields down and allowing mortgage rates to drift a bit lower. Sales of new and existing homes fell in June, and prices continue to weaken, especially in the markets that had recorded the strongest gains over the past few years. There are early signs, however, that the market is stabilizing. As construction spending levels off, the drag on GDP growth will continue to diminish. Meanwhile, the 5 percent rise in pending home sales in June suggests that sales in July and August may reverse last month's decline."

Perhaps Nothaft is reserving any comment on the brutal fallout in the subprime and alt-A markets, particularly the sudden demise of American Home Mortgage, for the Freddie Mac August forecast due out later on Wednesday. There certainly needs to be something said beyond the rather innocuous remark about investors seeking safety. In fact, it would be nice to know that the two GSE's which control so much of the residential purchasing in this country are doing some contingency planning in the midst of the current meltdown.

Meanwhile, some interesting figures have been released by the Mortgage Bankers Association which has announced that mortgage application activity increased 8.1 percent on a seasonally adjusted basis from the previous week and 7.7 percent when unadjusted. The activity is 18.0 percent higher than one year ago.

Our first reaction on hearing about this relatively steep increase in applications was to wonder how many of the applications were approved, but Alex Baron, a housing analyst for the Agency Trading Group, speculated in a CNBC interview with Erin Burnett that this increase in applications is illusory because potential borrowers are filing multiple applications in the hope of finding a willing lender in the current credit crunched market.

Applications to refinance were also up, representing 39.9 percent of total applications activity compared to 39.4 the previous week. Applications for ARMS increased slightly to 22.5 percent from 22.3 the previous week.

MBA's survey of rates also noted average decreases; the 30-year FRM averaged 6.41 percent with 1.62 points including the origination fee. Last week the 30-year averaged 6.50 with 1.66 points.

15-year fixed-rate mortgages decreased to 6.16 from 6.20 percent, with points decreasing to 1.18 from 1.30 while the average contract interest rate for one-year ARMs decreased to 5.69 from 5.73 percent, with points decreasing to 1.09 from 1.12. All rate figures are for 80 percent loan to value originations.