LOW MORTGAGE RATES CONTINUE TO FUEL REFINANCING ACCORDING TO FREDDIE MAC QUARTERLY REVIEW

Lower Rates and Strong Growth in Home Values Adds to Attractive Cash-Out Refi Atmosphere

McLean, VA - In the first quarter of 2003, 43 percent of Freddie Mac-owned loans that were refinanced resulted in new mortgages at least five percent higher in amount than the original mortgages, according to Freddie Mac’s quarterly refinance review.  This is in contrast to the first quarter of 2002, when 60 percent of refinanced loans had higher new loan amounts, and to the fourth quarter of 2002 when 41 percent of refinanced loans in had higher new loan amounts.

“Interest rates on 30-year fixed-rate mortgages have been below six percent for the last 18 weeks, setting five record lows this year.  This added tremendous fuel to the longest refi boom in US history,” said Amy Crews Cutts, Freddie Mac deputy chief economist.  “Additionally, homeowners have continued to extract equity from their homes when they refinance due to the strong growth in home values over the past several years and the very low cost of mortgage financing.”

Freddie Mac’s most recent quarterly economic forecast sees economic growth of only about two percent during the first half of this year, and this will serve to keep mortgage rates at their current level of under six percent.  “But with low rates and a pick-up in economic growth in the second half of 2003, home sales are expected to break last year’s record pace, contributing to the economy’s recovery,” added Cutts.

“In 2002, homeowners converted $96 billion of their home equity into cash and supported the economy through home improvements, car purchases, and repayment of consumer debt,” noted Cutts.  “Thus far in 2003, over $24 billion in equity has been converted, but that has hardly made a dent in the $6 trillion worth of equity value held in single-family homes.

“By reducing their mortgage costs through refinancing, homeowners are saving a little more than $110 a month on average, and in aggregate that adds up to some $300 million per month in extra spending money for those homeowners to put back into the economy.”

In 2002, homeowners with conventional, conforming mortgages took over $96 billion in equity out of their homes.  This compares with an estimated $84 billion that was cashed-out and turned back into the economy in 2001.  These estimates are net of the consolidation of about $70 billion in second mortgage and/or home equity loan debt into the new refinance loan.  Including the pay-off of second mortgages and home equity loans, the refinance loans were an estimated $166 billion larger than the first mortgage loans that were paid off during 2002.

Freddie Mac’s Conventional Mortgage Home Price Index shows the cumulative growth in the value of housing, on a national average, to be about 40 percent over the past 5 years.  Freddie Mac’s economists have revised their forecast to an annualized growth rate of about 5.8 percent for 2003.

The review also revealed that properties refinanced during the first quarter 2003 experienced a median house-price appreciation of six percent during the time since the original loan was made, down from 17 percent for loans refinanced in first quarter 2002.

These estimates come from a sample of properties on which Freddie Mac has funded at least two successive loans.  Transactions are further screened to ensure that the latest loan is for refinance rather than home purchase.  The Freddie Mac analysis does not track the use of funds made available from these refinances.

Freddie Mac is a stockholder-owned corporation chartered by Congress in 1970 to create a continuous flow of funds to mortgage lenders in support of homeownership and rental housing. Freddie Mac purchases mortgages from lenders and packages them into securities that are sold to investors.  Over the years, Freddie Mac has opened the doors for one in six homebuyers and two million renters across America.

Freddie Mac is a stockholder-owned corporation chartered by Congress in 1970 to create a continuous flow of funds to mortgage lenders in support of homeownership and rental housing. Freddie Mac purchases mortgages from lenders and packages them into securities that are sold to investors.  Over the years, Freddie Mac has opened the doors for one in six homebuyers and two million renters across America.

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