After surging 52 basis points last week, 30-year fixed mortgage rates dropped back 42 basis points this week to 6.04%, according to Freddie Mac's weekly survey. 

"Long-term mortgage rates fell this week amid news of tame inflation and a weaker housing market," Freddie Chief Economist Frank Nothaft said.

The 15-year fixed mortgage rates also dropped 42 basis points to 5.72%, cutting 82% of last week"s jump. 

The ARM side was mixed with five-year hybrid ARMs declining to 6.06% from 6.14%, while one-year ARM rates rose seven basis points to 5.23%. 

The improvement in mortgage rates closer to 6% should provide a modest boost to application activity this week. 

Yesterday, the Mortgage Bankers Assocation reported a 24% drop in the Refinance Index to 1159, while the Purchase Index fell 11% to 279 for the week ending Oct. 17 in response to the jump in mortgage rates. These are at levels experienced in late 2000.

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