Due to reports of continued weakness in the economy, rates on fixed-rate mortgages edged lower during the week ended August 28 according to the results of Freddie Mac's Primary Mortgage Market Survey.

The 30-year fixed-rate mortgage (FRM) averaged 6.40 percent with 0.6 point for the week compared with an average of 6.47 percent with 0.7 point the previous week.

Rates for the 15-year FRM were at 5.93 percent with 0.6 point, down from 6.0 percent with 0.7 point a week earlier.

Both adjustable rate mortgages (ARMs) tracked by Freddie Mac were up slightly. The five-year Treasury-indexed hybrid increased from 5.99 percent to 6.03 percent with fees and points fixed at 0.6. One-year Treasury-indexed ARMs carried an average rate of 5.33 percent, up from 5.29 percent a week earlier. Fees and points rose to 0.7 from 0.5.

"Interest rates for fixed-rate mortgages continue to drift down as reports of economic weakness persist. July's leading economic indicators fell by more than the market consensus and manufacturing slowed in both the Philadelphia and Richmond regions. ARM rates, on the other hand, rose slightly after the Federal Reserve's Open Market Committee hinted it might increase the overnight bank lending rate in its August 5th minutes," said Frank Nothaft, Freddie Mac vice president and chief economist.

The pace of home price declines slowed down for the fourth straight month in June and the number of metro areas exhibiting monthly gains rose from seven to nine, according to the S&P/Case-Shiller' 20-city composite index," Nothaft said. "There are also signs more buyers may be getting ready to return to the market. The Conference Board says the share of households planning to buy a home within six months is now at its highest level since March. At the same time, the supply for unsold new homes is down to 10.1 months, the lowest since February, as single-family existing homes (excluding condos and co-ops) start to sell more quickly. Although, when condos and co-ops are included, the resale inventory did edge up."

The Mortgage Bankers Association's (MBA) larger Weekly Mortgage Applications Survey reported that the average contract interest rate for 30-year FRMs declined to 6.39 percent from 6.44 percent with points, including the origination fee, decreasing from 1.03 to 1.0.

Fifteen-year FRMs had an average interest rate of 5.96 percent, a slight increase from the 5.95 percent reported a week earlier. Fees and points decreased from 1.13 to 1.03.

One-year FRMs had an average contract interest rate of 7.11, down from 7.15 a week earlier. Points decreased to 0.35 from 0.36.

Mortgage applications were up 7.5 percent on a seasonally adjusted basis and 5.8 percent unadjusted from the week ended August 22 but were 27.0 percent below the level reported during the same week in 2007.

Last week 34.0 percent of mortgage applications were for the purpose of refinancing an existing loan, down from 35.2 percent the previous week and the popularity of adjustable rate mortgages continued to slide. ARMs now represent only 6.6 percent of mortgage volume. One week earlier they represented 7.9 percent and during the last week in August two years ago ARM applications represented 26.8 percent of the market. This was, of course, months before the credit markets started to unravel.