Fixed-Rate Mortgages Still Strongly Dominate Refinance Market
November 14,
2007
Contact:
corprel@freddiemac.com
or (703) 903-3933
McLean, VA – Freddie Mac (NYSE: FRE) announced today that in the third quarter of 2007, 85 percent of borrowers who originally had a 1-year adjustable-rate mortgage (ARM) chose a new fixed-rate mortgage when they refinanced, and 82 percent of borrowers that initially had a hybrid ARM refinanced into a fixed-rate loan. The comparable numbers in the second quarter were 86 percent and 85 percent, respectively.
"Mortgage rates on 30-year fixed-rate conventional conforming loans became more favorable during the third quarter after topping out at 6.7 percent in July," said Amy Crews Cutts, deputy chief economist for Freddie Mac. "Average 30-year fixed rates in September were 0.32 percentage points lower than the average rates in July, according to Freddie Mac’s Primary Mortgage Market Survey®, and the difference between fixed and adjustable rates narrowed through August and most of September.
"Although the spread between the 30-year fixed-rate and 15-year fixed-rate mortgages did not move significantly in the third quarter, more borrowers replaced their 15-year fixed-rate mortgages with 30-year fixed-rates when they refinanced," Cutts added.
The Refinance Product Transition Report indicates that 58 percent of borrowers who originally had a 15-year fixed-rate loan switched to a 30-year fixed-rate mortgage when they refinanced in the third quarter, the highest percentage since the start of the quarterly series in 2002. The rate was 53 percent in the second quarter, and only 8 percent in the third quarter of 2002. Conversely, only 5 percent of borrowers with 30-year fixed-rate loans chose 15-year fixed-rate when they refinanced in the third quarter, the lowest level since the first quarter of 2002.
The Report also shows that refinancing into the 30-year fixed-rate mortgage among borrowers who originally had an adjustable-rate or another fixed-rate loan increased in the third quarter of 2007 relative to the second quarter of 2007. However, fewer borrowers who originally had a balloon mortgage switched into a 30-year fixed, compared to the second quarter of 2007, and the percentage of borrowers originally holding 30-year fixed-rate mortgages refinancing back into the same product stayed unchanged from the previous quarter.
Borrowers who originally had a 1-year ARM, with interest-rate adjustments occurring on equal frequencies for the life of the loan, stayed with a 1-year ARM product 5 percent of the time when they refinanced in the third quarter of 2007, up from a 4 percent share in the second quarter and a 2 percent share a year ago. As with the previous quarter, ten percent of 1-year ARM borrowers switched into a hybrid ARM product in the third quarter, down from 12 percent in the third quarter of 2006.
These estimates come from a sample of properties on which Freddie Mac has funded at least two successive loans. Transactions are further screened to verify that the latest loan is for refinance rather than for home purchase.
| QUARTERLY PRODUCT TRANSITION STATISTICS | |||||||
|---|---|---|---|---|---|---|---|
| New Product | |||||||
| Quarter | Old Product | 1-Year ARM1 | ARM – Hybrid2 | Ballon3 | FRM 15yr4 | FRM 20yr5 | FRM 30yr6 |
| 200603 | 1-Year ARM | 2% | 12% | 0% | 27% | 8% | 51% |
| ARM - Hybrid | 0% | 22% | 0% | 6% | 6% | 64% | |
| Balloon | 0% | 11% | 1% | 9% | 6% | 73% | |
| FRM 15yr | 0% | 5% | 0% | 34% | 9% | 52% | |
| FRM 20yr | 0% | 5% | 0% | 13% | 19% | 64% | |
| FRM 30yr | 0% | 9% | 0% | 6% | 7% | 78% | |
| 200604 | 1-Year ARM | 2% | 9% | 1% | 21% | 9% | 57% |
| ARM - Hybrid | 0% | 19% | 0% | 5% | 8% | 68% | |
| Balloon | 0% | 11% | 0% | 10% | 7% | 71% | |
| FRM 15yr | 0% | 3% | 0% | 32% | 9% | 55% | |
| FRM 20yr | 0% | 4% | 0% | 12% | 23% | 61% | |
| FRM 30yr | 0% | 6% | 0% | 5% | 8% | 81% | |
| 200701 | 1-Year ARM | 1% | 7% | 2% | 20% | 12% | 57% |
| ARM - Hybrid | 0% | 17% | 0% | 6% | 12% | 65% | |
| Balloon | 0% | 10% | 1% | 11% | 10% | 68% | |
| FRM 15yr | 0% | 3% | 0% | 33% | 10% | 54% | |
| FRM 20yr | 0% | 3% | 0% | 13% | 25% | 59% | |
| FRM 30yr | 0% | 5% | 0% | 5% | 9% | 81% | |
| 200702 | 1-Year ARM | 4% | 10% | 1% | 18% | 8% | 60% |
| ARM - Hybrid | 0% | 15% | 0% | 6% | 13% | 65% | |
| Balloon | 0% | 9% | 0% | 10% | 9% | 71% | |
| FRM 15yr | 0% | 2% | 0% | 34% | 10% | 53% | |
| FRM 20yr | 0% | 4% | 0% | 14% | 22% | 60% | |
| FRM 30yr | 0% | 5% | 0% | 5% | 11% | 79% | |
| 200703 | 1-Year ARM | 5% | 10% | 1% | 18% | 6% | 61% |
| ARM - Hybrid | 1% | 17% | 0% | 5% | 10% | 67% | |
| Balloon | 0% | 8% | 2% | 13% | 10% | 67% | |
| FRM 15yr | 0% | 3% | 0% | 28% | 11% | 58% | |
| FRM 20yr | 0% | 5% | 0% | 10% | 21% | 63% | |
| FRM 30yr | 0% | 7% | 0% | 5% | 9% | 79% | |
Notes:
These estimates come from a sample of properties on which Freddie Mac has funded at least two successive loans. Transactions are further screened to verify
that the latest loan is for refinance rather than for home purchase. Where applicable, data include amortizing as well as interest-only or option-payment loans.
1Adjustable-rate mortgages with rate resets at 1-year intervals for life of loan; contains a small number of other equal-frequency reset ARMs such as 3/3 ARMs, etc.
2Adjustable-rate mortgages with first rate reset period longer than other regular rate reset periods, such as 3/1 ARMs, 5/1 ARMs, etc.
3Includes all maturities with one rate reset.
4Fixed-rate mortgages with maturities of 15 years or shorter, with 15-year being the dominant product type.
5Fixed rate mortgages with maturities of 20 or 25 years.
6Fixed-rate mortgages with maturities of 30 years or more.
These data can be found at www.FreddieMac.com/news/finance/refi_archives.htm. For more information, contact us at chief_economist@freddiemac.com.
Although Freddie Mac attempts to provide reliable, useful information in this document, Freddie Mac does not guarantee that the information is accurate, current or suitable for any particular purpose. The information is therefore provided on an "as is" basis, with no warranties of any kind whatsoever. Opinions and estimates contained in this document are those of Freddie Mac currently and are subject to change without notice. Information from this document may be used with proper attribution. Alteration of this document is strictly prohibited. © 2007 by Freddie Mac.
Freddie Mac is a stockholder-owned corporation established by Congress in 1970 to support homeownership and rental housing. Freddie Mac purchases single-family and multifamily residential mortgages and mortgage-related securities, which it finances primarily by issuing mortgage pass through securities and debt instruments in the capital markets. Over the years, Freddie Mac has made home possible more than 50 million times, ensuring financing for one in six homebuyers and more than four million renters.
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