Fixed-rate mortgage rates dropped sharply this week following the government's takeover of the GSEs. 

According to Freddie Mac's weekly survey, the 30-year fixed mortgage rate averaged 5.93%, down 42 basis points from last week's 6.35% average. The last time rates were below 6% was the April 17 report when it was at 5.88%. 

At this level, the Refinance Index was above 2200. Furthermore, rates are down 70 basis points from its high of 6.63% on July 24. The 15-year fixed mortgage tumbled 36 basis points to 5.54%.

Adjustable mortgage rates were mixed with five-year hybrid ARMs at 5.87% compared to 5.97% previously. Meanwhile, one-year ARM rates rose six basis points to 5.21%.

The improvement in mortgage rates is expected to stimulate application activity, and thus prepayments — particularly in October.

Current projections have speeds surging 25% to over 30% in October (reported in November) with the largest percentage gains seen in 2007 vintages.

Speeds are seen turning modestly lower in November on slower seasonals and five less collection days compared to October.

Speeds are also seen slower in September, down 5% in FNMAs and 2% lower in GNMAs in response to slightly higher mortgage rates and lower refinancing activity in August.

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