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By Amy Hoak

RISMEDIA, August 27, 2007-(MarketWatch)-Mortgage rates declined this week, spurred by lower Treasury yields and the decision by the Federal Reserve to cut the discount rate, Freddie Mac’s chief economist said on Thursday.

The 30-year fixed-rate mortgage averaged 6.52% for the week ending Aug. 23, down from last week’s 6.62%, according to Freddie Mac’s weekly survey. The mortgage averaged 6.48% a year ago.

The 15-year fixed-rate mortgage averaged 6.18%, down from last week’s 6.30% average. The mortgage also averaged 6.18% a year ago.

Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 6.34% for the week, down slightly from 6.35% last week. The hybrid averaged 6.14% a year ago.
One-year Treasury-indexed ARMs averaged 5.60% for the week, down from last week’s 5.67% average. The ARM averaged 5.60% a year ago.

To obtain the rates, the 30-year fixed-rate mortgage required payment of an average 0.4 point, while the 15-year fixed-rate mortgage required payment of an average 0.5 point. Both ARMs required payment of an average 0.6 point.

“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, in a news release. “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% last Friday.”

Nothaft also noted that economic indicators released over the past week showed 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,” he said.

According to a separate survey released Wednesday by the Mortgage Bankers Association, the volume of mortgage applications was down 5.5% last week. However, the “week-to-week changes in the purchase applications should be treated with a certain degree of caution,” given the turmoil in the mortgage market these days, the MBA’s vice president of research and economics said.

Amy Hoak is a MarketWatch reporter based in Chicago.

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