Following a 32 basis point surge during the past two weeks, the average 30-year fixed rate mortgage declined 0.16% from the prior week to 5.94% in Freddie Mac’s Primary Mortgage Market Survey for the week ending Oct. 9. The 30-year was 6.40% during the same week in 2007.

The weekly decline for the 15-year fixed-rate mortgage was 15 BPS, bringing the average to 5.63%.

“Longer-term mortgage rates fell for the first time in three weeks, roughly following bond market yields,” Freddie Chief Economist Frank Nothaft explained in the survey.

The yield on the 10-year Treasury was 3.74% near midday, climbing from 3.66% seven days earlier, according to data from CNNMoney. The increase suggests an upcoming increase in fixed-mortgage rates.

The Federal Open Market Committee lowered its target for the federal funds rate by 50 BPS to 1.50%. The fed noted concerns over inflation have abated while the financial crisis has intensified.

“The committee took this action in light of evidence pointing to a weakening of economic activity and a reduction in inflationary pressures,” a fed statement said. “Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.”

But mortgage rates are headed even lower, according to 53 of the 100 mortgage bankers, mortgage brokers and other industry “experts” surveyed by Bankrate.com for the week Oct. 9 to Oct. 15. Another 41 forecast rates will rise, while six expect rates to stay within 2 BPS of their current levels over the next 35 to 45 days.

Looking at ARM activity, Freddie said the 5-year Treasury-indexed hybrid ARM fell 10 BPS from the previous week to 5.90%. The 1-year Treasury-indexed ARM, however, increased 3 BPS to 5.15%.

The underlying index for the 1-year ARM, the 1-year Treasury yield, was 1.28% yesterday — tumbling 44 BPS from one week earlier, the U.S. Treasury Department reported. The 6-month London Interbank Offered Rate was 4.02% as of yesterday, Bankrate.com reported. LIBOR was 3.98% last week.

Almost unchanged from the prior week, ARM applications accounted for 2% of total applications in the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending Oct. 3. The previous weeks, ARM share was 3%.

Total loan applications rose 2%, raising the Market Composite Index to 465.5, MBA reported. Purchase applications rose 3%. Refinance applications nudged 1% higher — though the refinance share of applications eased to 43% from 44%.

Government applications — mostly consisting of FHA activity — jumped 10%, according to MBA’s survey.

Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of MortgageDaily.com.

e-mail: mtgsam@aol.com