Mortgage loan applications picked up to 985.5 for the week ending Dec. 13, a 14.2% increase from the previous week’s 862.7, according to the Mortgage Bankers Association of America’s (MBA) index. That seasonally-adjusted figure wasn’t far from doubling last year’s index of 562.4.

Refinancing activity represented 73.0% of total applications, an increase from 70.0% the previous week, the MBA reported.

The average one-year ARM plunged to 4.07% for the week ending Dec. 20, the lowest level recorded by Freddie since the mortgage giant began tracking it in 1984. Last week’s average was 4.18%, and last year’s was 5.27%.

After decreasing for the first time in a month last week at 6.04%, the 30-year fixed-rate mortgage dropped a little bit more to 6.03% this week, according to Freddie’s weekly survey. Last year at this time, the 30-year averaged 7.17%.

The 30-year was highest in the North Central states at 6.13%, and was lowest in the Southwest at 5.96%.

Freddie’s survey, which reports the week ahead of the MBA index, found the average 15-year this week at 5.42%, a slight decrease from last week’s 5.46%. A year ago, the 15-year averaged 6.65%

Since November rates dipped to the lowest levels since the 1960s, it’s no big surprise that housing starts rose for the second time in three months, said Frank Nothaft, chief economist at Freddie.

“Since mortgage rates are not expected to increase significantly, we remain confident that the housing industry will continue to be alive and active well into 2003,” he said. “As a matter of fact, over the last few days financial markets have been experiencing some nervousness about war in the Middle East and this may cause some downward pressure on interest rate, which could possibly lower mortgage rates a little more in the coming weeks.”

More than 80% of the experts polled for Bankrate.com’s weekly survey agreed.

When asked what mortgage rates will do over the next 30 to 45 days, 25% said they will drop and 58% said they will remain the same, plus or minus 2 bps. Only 17% said rates will rise.

“Persistent economic concerns and the absence of inflation will sustain current rates through mid-January,” said Neil Cribb, president of Mortgage Financial Network in Safety Harbor, Fla.

Friday near midday, the 10-year Treasury note was down 0.03125, raising its yield to 3.95%.