For the week ending Oct. 24, the Mortgage Bankers Association (MBA) Refinancing Index increased to 2311.8, rising 5% from 2204.1 (holiday-adjusted) the prior week.

“The increase in the index was in line with our expectations and was most likely due to a decline in mortgage rates, which dropped by roughly 5 to 10 basis points week over week,” said a Citigroup Global Markets report released this morning.

As of yesterday, primary market mortgage rates were about halfway between August peaks and the record lows in June. The firm’s survey of lenders’ Web sites showed that primary mortgage rates currently vary between 5.75% and 6.125%. The spread between the primary and secondary market remained in the 30 basis points range over the past week.

Since hitting its peak in June (which coincided with the record lows in mortgage rates) the spread has tightened by about 50%. Current spreads are now close to levels seen at the end of July 2002,which marked the start of the latest refinancing wave. Recent tightening might mean that lenders have sufficient capacity to process incoming applications without a huge backlog. It also indicates that lenders are probably willing to operate at tighter margins to attract more applications.

The Freddie Mac Survey Rate reported at 6.05% last week, and remained unchanged from the Oct. 17 report. Based on the current level of market rates, Countrywide Securities expects the survey rate, which will be released tomorrow, to drop five to 10 basis points, pushing the number below the 6% level.Citigroup expects the Freddie Mac Survey Rate released tomorrow to drop to about 5.90%.

Meanwhile, the MBA Purchase Index dropped about 5.7% week over week (seasonally adjusted). This Index dropped to 363.9 from 386.1 the previous week. The refinancing share of mortgage activity rose to 53.3% from 50.5% a week ago.

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