Long term mortgage rates fell dramatically during the week ended March 20 according to the Primary Mortgage Market Survey released by Freddie Mac. Short term rates remained relatively unchanged although fees and points bumped up to the highest levels we have seen in the three years we have been tracking the Freddie Mac report.

The 30-year fixed-rate mortgage (FRM) had an average rate of 5.87 percent with 0.5 point for the week compared to the previous week when it averaged 6.13 percent with 0.5 point. Last year at this time the 30-year averaged 6.16 percent.

The 15-year FRM dropped 33 basis points to 5.27 percent. Fees and points were unchanged at 0.5. One year ago the average rate for the 15-year was 5.90 percent.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) carried a mean rate of 5.56 percent, down from the previous week when rates averaged 5.58 percent. Fees and points, however, rose to an average of 0.9 point from 0.6 point. One year ago the 5-year ARM averaged 5.91 percent.

One-year Treasury-indexed ARMS averaged 5.15 percent, an increase of one basis point from the previous week and points increased from 0.7 to 0.8. This same week in 2007 the one-year ARM averaged 5.40 percent.

"Mortgage rates fell this week as various actions were taken to improve market liquidity," said Frank Nothaft, Freddie Mac vice president and chief economist. "In addition, the inflation report from the Consumer Price Index (CPI) reflected weaker price increases than consensus expectations. Unchanged in February both including and excluding food and energy costs, it is the first time the core CPI did not report a monthly increase since November 2006.

"Meanwhile, retail sales fell by 0.6 percent in February, contrary to the consensus forecast of a 0.2 percent increase, signaling that the condition of the economy might be weaker than previously thought. Slowing consumer spending and weak employment conditions are among the concerns behind the Fed's decision to lower the target federal funds rate by 0.75 percentage points in the most recent Federal Open Market Committee meeting."

Interest rates as reported by the Mortgage Bankers Association´┐Żs Weekly Mortgage Applications Survey for the week ended March 21 were mixed.

The average contract interest rate for 30-year FRMs decreased to 5.74 percent from 5.98 percent, with points, including the origination fee, increasing to 1.13 from 0.90.

15-year FRMs decreased only one basis point to 5.23 percent while points increased to 1.15 from 0.97 and the rate for one-year ARMS averaged 7.02 percent compared to 6.99 percent the previous week with points increasing to 1.71 from 1.64.

Activity in the applications area was way up. Volume increased 48.1 percent on a seasonally adjusted basis from one week earlier and 46.1 percent unadjusted. Compared to the same week one year ago, applications were up 41.1 percent.

Applications to refinance were up again after sliding a lot over the previous two weeks. 62 percent of all applications were for the purpose of refinancing compared to 49.7 percent a week earlier. ARMs continued to lose popularity, maybe they are even in danger of disappearing. Only 3.8 percent of applications were for adjustable rate mortgages; the previous week ARMs had a 7.9 percent market share.