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Fixed-Rate Mortgages Dominant Choice of Refinancing Borrowers

Trend Towards Shorter Loan Terms Continues

For Immediate Release

November 15, 2010
Contact: corprel@freddiemac.com
or (703) 903-3933


McLean, VA – Freddie Mac (OTC:FMCC) announced the results of its quarterly Product Transition Report today.

News Facts

  • Freddie Mac found that in the third quarter of 2010, refinancing borrowers overwhelmingly chose fixed-rate loans, regardless of whether their original loan was an adjustable-rate mortgage (ARM) or a fixed-rate.

  • While 30-year fixed-rate mortgages are still the most preferred product chosen for the new loan among borrowers who previously had that product or an ARM, borrowers who previously held shorter-term fixed-rate mortgages showed a stronger preference for staying with a 15-year or 20-year fixed-rate loan than they have in recent quarters. Overall, fixed-rate loans accounted for more than 95 percent of refinance loans.


Quotes

Attributed to Frank Nothaft, Freddie Mac vice president and chief economist

  • "Fixed mortgage rates fell throughout the third quarter in Freddie Mac's Primary Mortgage Market Survey®, with 30-year fixed rates dropping to levels we hadn't seen since the early 1950s. We ended the second quarter excited that borrowers could lock in a rate of 4.75 percent for 30 years, and we ended the third quarter with rates at just a touch over 4.25 percent. It's no wonder borrowers are attracted to fixed-rate loans.

  • "The share of borrowers shortening their amortization terms remains high. There is always a discount for shorter terms but the payments are often about 50 percent higher than a 30-year amortizing payment and thus are unaffordable to many homeowners. What we're seeing now is that the level of the 15-year payment is becoming more affordable to more borrowers."

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. Some loan products, such as 1-year ARMs and balloons, are based on a small number of transactions. Year-to-date through September, the ARM share of applications was 6 percent in Freddie Mac's monthly ARM survey, which includes purchase-money as well as refinance applications.

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.

QUARTERLY PRODUCT TRANSITION STATISTICS
  New Product
Quarter Old Product 1-Year ARM1  ARM – Hybrid2 Ballon3 FRM 15yr4  FRM 20yr5  FRM 30yr6 
200903 1-Year ARM 0% 1% 0% 16% 4% 79%
ARM – Hybrid 0% 6% 0% 8% 1% 85%
Balloon 0% 4% 0% 26% 2% 68%
FRM 15yr 0% 0% 0% 62% 2% 37%
FRM 20yr 0% 0% 0% 45% 8% 47%
FRM 30yr 0% 0% 0% 13% 3% 84%
200904 1-Year ARM 1% 2% 0% 22% 4% 71%
ARM – Hybrid 0% 11% 0% 9% 2% 78%
Balloon 0% 6% 0% 26% 5% 64%
FRM 15yr 0% 0% 0% 70% 2% 28%
FRM 20yr 0% 1% 0% 55% 8% 36%
FRM 30yr 0% 0% 0% 13% 7% 80%
201001 1-Year ARM 0% 7% 0% 17% 4% 72%
ARM – Hybrid 0% 12% 0% 8% 3% 78%
Balloon 0% 8% 0% 24% 7% 60%
FRM 15yr 0% 1% 0% 72% 2% 25%
FRM 20yr 0% 0% 0% 58% 9% 33%
FRM 30yr 0% 1% 0% 16% 12% 72%
201002 1-Year ARM 3% 3% 0% 24% 3% 66%
ARM – Hybrid 0% 16% 0% 6% 2% 76%
Balloon 1% 12% 0% 24% 9% 54%
FRM 15yr 0% 1% 0% 71% 3% 24%
FRM 20yr 0% 1% 0% 57% 9% 33%
FRM 30yr 0% 1% 0% 18% 12% 69%
201003 1-Year ARM 2% 7% 0% 30% 4% 57%
ARM – Hybrid 0% 15% 0% 5% 2% 77%
Balloon 0% 11% 0% 25% 10% 54%
FRM 15yr 0% 1% 0% 83% 2% 14%
FRM 20yr 0% 0% 0% 65% 12% 23%
FRM 30yr 0% 1% 0% 17% 13% 69%

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 http://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. © 2010 by Freddie Mac.

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