Skip to Page Content | Skip to Site Navigation | Skip to Section Navigation

Refinancing Borrowers Choose Safety of Fixed-Rate Mortgages in Third Quarter

Among ARMs, Hybrid Loan Products Most Popular Choice

For Immediate Release

November 20, 2008
Contact: corprel@freddiemac.com
or (703) 903-3933


McLean, VA – Freddie Mac (NYSE:FRE) announced today that in the third quarter of 2008, 94 percent of prime borrowers who originally had a 1-year conforming adjustable-rate mortgage (ARM) chose a new conforming fixed-rate mortgage when they refinanced and 82 percent of prime borrowers that initially had a conforming hybrid ARM refinanced into a conforming fixed-rate loan as well. The revised comparable numbers in the second quarter were 97 percent and 86 percent, respectively. Furthermore, more than 95 percent of borrowers who had a fixed-rate loan refinanced into another long-term fixed-rate loan.

"The elevated interest-rate volatility that has been a feature of the capital markets in recent months has discouraged borrowers from seeking adjustable-rate mortgages unless they have at least several years worth of an initial fixed-rate period," said Frank Nothaft, vice president and chief economist for Freddie Mac. "When borrowers see so much change in interest rates it highlights the payment risk that they may face from future rate increases.

"In the third quarter alone, weekly average rates on 1-year ARMs ranged from a low of 5.0 percent to a high of 5.5 percent; with this contract the borrower faces the uncertainty of not knowing what the interest rate will be in one year. In contrast, while rates on 5/1 hybrid ARMs were slightly higher, ranging from 5.7 to 6.4 percent in the third quarter, the borrower locks in that rate for five years."

The Refinance Product Transition Report indicates that while 18 percent of borrowers who initially had a hybrid ARM refinanced back into that product, only 4 percent of borrowers who originally had a 30-year fixed-rate loan switched to an ARM loan, and all of those borrowers chose a hybrid loan product. These estimates come from a sample of properties on which Freddie Mac has funded at least two successive loans and 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 
200703 1-Year ARM 5% 8% 0% 17% 4% 65%
ARM - Hybrid 0% 15% 0% 5% 10% 69%
Balloon 0% 9% 2% 12% 9% 69%
FRM 15yr 0% 3% 0% 28% 11% 58%
FRM 20yr 0% 5% 0% 11% 20% 64%
FRM 30yr 0% 6% 0% 5% 9% 79%
200704 1-Year ARM 3% 2% 1% 23% 4% 66%
ARM - Hybrid 0% 10% 0% 8% 6% 75%
Balloon 0% 6% 10% 14% 6% 63%
FRM 15yr 0% 1% 0% 36% 8% 54%
FRM 20yr 0% 3% 0% 16% 23% 58%
FRM 30yr 0% 3% 0% 6% 6% 85%
200801 1-Year ARM 5% 2% 1% 22% 4% 66%
ARM - Hybrid 0% 20% 0% 8% 4% 67%
Balloon 0% 8% 5% 20% 6% 61%
FRM 15yr 0% 1% 0% 57% 4% 37%
FRM 20yr 0% 4% 0% 39% 19% 39%
FRM 30yr 0% 2% 0% 13% 7% 78%
200802 1-Year ARM 5% 2% 0% 28% 7% 62%
ARM - Hybrid 0% 14% 0% 8% 4% 74%
Balloon 0% 7% 0% 17% 6% 70%
FRM 15yr 0% 1% 0% 49% 6% 44%
FRM 20yr 0% 3% 0% 31% 19% 47%
FRM 30yr 0% 2% 0% 14% 8% 77%
200803 1-Year ARM 2% 4% 0% 24% 6% 65%
ARM - Hybrid 0% 18% 0% 8% 2% 71%
Balloon 0% 8% 0% 21% 5% 66%
FRM 15yr 0% 2% 0% 38% 5% 55%
FRM 20yr 0% 5% 0% 19% 11% 65%
FRM 30yr 0% 4% 0% 11% 4% 82%

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. Row totals may not sum to 100% due to rounding.

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/finance/refi_archives.html. 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. © 2008 by Freddie Mac.

Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than five million renters.

###

Back to Top