Freddie Mac reported 30-year fixed mortgage rates averaged 5.78% this week, down 15 basis points from the last survey.

In the past two weeks, the rate has plummeted 57 basis points, and since July's high of 6.63%, rates are down 85 basis points.

The GSe also reported a 19 basis point decline in 15-year fixed mortgage rates to 5.35%; a drop of 20 basis points in five-year hybrid ARM rates to 5.67%; and one-year ARM rates 18bps lower to 5.03%.

On the face of it, borrowers incentive to refinance has picked up rather dramatically. For example,

UBS analysts project that at a 5.8% mortgage rate, about 30% of the outstanding agency universe has a 50 basis point rate incentive, and around 47% has a 25 basis point incentive. This compares with less than a 10% rate incentive back in July. Potentially impacting incentives is the weak housing market and tight lending standards — possibly further constrained by the events of this week.

Based on current rate levels, UBS projects the Mortgage Bankers Association's (MBA) Refinace Index could reach between 2900 and 3400 in the coming weeks. Yesterday, the MBA reported an 88% surge in the Refinance Index to 2300 for the week ending Sept. 12.

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