Freddie Mac reported 30- and 15-year fixed mortgage rates set new lows in the week ending May 31.

The 30-year rates declined three basis points to 3.75% with an average 0.8 point which places the no point rate at 3.95%.

Meanwhile, the 15-year note rate fell to 2.97% from 3.04% last week. The GSE said the 15-year rate under 3.0% brings "three of the four benchmark mortgage rates below 3% for the first time in Freddie Mac's weekly survey."

The other two benchmarks are 5/1 hybrid and one-year ARMs which averaged 2.84% and 2.75%, respectively, up one basis point and unchanged from the prior report.

Mortgage application activity should remain responsive to rate levels, although next week's report for the week ending June 1 will see some noise associated with the Memorial Day holiday. Yesterday, the Mortgage Bankers Association reported a 1.5% decline in the Refinance Index to 4388 following a 21% jump over the previous three weeks on consecutive new lows in rates.

For the month of May, 30-year fixed mortgage rates averaged 3.80% compared to 3.91% in April. Meanwhile through last Friday, refinancing activity for the month is running 13% higher. This is likely to lead to further upward revisions for prepayments in June (reported in July).

Currently, FNMA speeds are expected to rise just 1% in June overall. However, 3.5% and 4.0% coupons are seen jumping 10%-20%, while 5.5s and 6.5s are predicted to hold steady.

The 30-year FNMA speeds are projected to increase 6% on average in May with Home Affordable Refinance Program (HARP)-able 5.5s through 6.5s gaining around 8% compared to +5% on 4.5s and 5.0s.

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