Cash-Out Refinance Share Remains High in Second Quarter
August 07,
2007
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corprel@freddiemac.com
or (703) 903-3933
Dollar Volume of Equity Cashed-Out Rose to $76.7 Billion
McLean, VA – In the second quarter of 2007, 83 percent of Freddie Mac-owned loans that were refinanced resulted in new mortgages with loan amounts that were at least five percent higher than the original mortgage balances, according to Freddie Mac's quarterly refinance review. The revised share for the first quarter of 2007 was also 83 percent.
"Mortgage rates increased in the second quarter, which lowered overall demand for refinancing from 46 percent of all mortgage applications in the first quarter to an estimated 42 percent this quarter as reported by Freddie Mac's Primary Mortgage Market Survey®," said Frank Nothaft, Freddie Mac vice president and chief economist. "Borrowers who are refinancing are motivated by either a desire to extract equity or to obtain more favorable terms than on their adjustable-rate mortgage (ARM), which may be nearing an interest-rate adjustment.
"We expect refinancing activity to slow further, perhaps as low as one-third of new mortgage applications in the second half of 2007."
Freddie Mac expects 30-year fixed mortgage rates to average between 6.6 and 6.9 percent for conforming loans over the rest of 2007 and initial rates on 1-year Treasury-indexed ARMs to hover near 5.6 percent.
In the second quarter of 2007, the median ratio of new-to-old interest rate was 1.02. In other words, one-half of those borrowers who paid off their original loan and took out a new one increased their mortgage coupon rate by 2 percent, or roughly one-eighth of a percentage point at today's level of 30-year fixed mortgage rates.
"This quarter we saw $76.7 billion cashed out, up from a revised $73.8 billion cashed out in the first quarter of 2007," said Amy Crews Cutts, Freddie Mac deputy chief economist. "Because the refinance share of mortgage originations is expected to decline by as many as 10 percentage points in the second half and originations are usually a bit lower in the second half due to seasonal market conditions, we expect the volume of cash-out activity to decline by roughly a third later this year.
"Overall, there remains a large amount of equity in homes that homeowners can tap if they wish for making home improvements or other investments. But slowing home price appreciation will mean that more recent homebuyers will not have built up much equity over the past year or so and they will have less opportunity to use their home's equity. Recent stock market gains may offset some of the impact of the slowing home equity growth in allowing consumers to finance their new investments, education costs, or to pay down other debts."
The Cash-Out Refinance Report also revealed that properties refinanced during the second quarter of 2007 experienced a median house-price appreciation of 23 percent during the time since the original loan was made, down from a revised 25 percent in the first quarter 2007. For loans refinanced in the second quarter of 2007, the median age of the original loan was 3.5 years, 2.4 months older than the median age of loans refinanced during the first quarter of 2007; this was the oldest median age in nearly seven years.
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.The Freddie Mac analysis does not track the use of funds made available from these refinances.
Quarterly Refinance Statistics |
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| Percentage of Refinances Resulting in: | Descriptive Statistics on Loan Terms and Property Valuation | ||||
| Quarter | 5% Higher Loan Amount1 | Lower Loan Amount | Median Ratio of New to Old Rate2 | Median Age of Refinanced Loan (years) | Median Appreciation of Refinanced Property |
| 200001 | 80% | 7% | 1.07 | 5.0 | 22% |
| 200002 | 80% | 8% | 1.10 | 4.8 | 24% |
| 200003 | 81% | 8% | 1.09 | 4.6 | 26% |
| 200004 | 74% | 10% | 1.02 | 3.5 | 23% |
| 200101 | 53% | 8% | 0.87 | 1.6 | 12% |
| 200102 | 60% | 9% | 0.87 | 2.5 | 16% |
| 200103 | 61% | 10% | 0.88 | 2.7 | 18% |
| 200104 | 47% | 19% | 0.84 | 2.8 | 14% |
| 200201 | 61% | 10% | 0.86 | 3.4 | 18% |
| 200202 | 63% | 10% | 0.88 | 3.4 | 20% |
| 200203 | 44% | 19% | 0.84 | 2.9 | 13% |
| 200204 | 40% | 22% | 0.82 | 2.4 | 11% |
| 200301 | 41% | 13% | 0.81 | 1.9 | 7% |
| 200302 | 33% | 15% | 0.79 | 1.7 | 3% |
| 200303 | 34% | 17% | 0.78 | 1.7 | 5% |
| 200304 | 44% | 21% | 0.82 | 2.2 | 12% |
| 200401 | 42% | 14% | 0.82 | 2.0 | 6% |
| 200402 | 43% | 14% | 0.83 | 2.0 | 8% |
| 200403 | 59% | 15% | 0.88 | 2.5 | 17% |
| 200404 | 57% | 19% | 0.88 | 2.2 | 16% |
| 200501 | 64% | 10% | 0.89 | 2.4 | 17% |
| 200502 | 72% | 9% | 0.92 | 2.5 | 23% |
| 200503 | 73% | 10% | 0.93 | 2.6 | 24% |
| 200504 | 81% | 8% | 0.98 | 2.9 | 29% |
| 200601 | 86% | 5% | 1.02 | 3.0 | 31% |
| 200602 | 88% | 4% | 1.08 | 3.2 | 34% |
| 200603 | 88% | 5% | 1.10 | 3.3 | 33% |
| 200604 | 82% | 7% | 1.04 | 3.3 | 27% |
| 200701 | 83% | 5% | 1.02 | 3.3 | 25% |
| 200702 | 83% | 5% | 1.02 | 3.5 | 23% |
Notes:
1Higher loan amount refers to loan amounts that were at least 5 percent greater than the amortized unpaid principal balance (UPB) of the original loan. "Lower loan amount" refers to loan amounts that were less than the amortized UPB of the original loan.
2Ratio of old to new rate refers to the ratio of the interest rate of the refinanced loan to the interest rate of the new loan.
These data can be found at www.FreddieMac.com/news/finance/refi_archives.htm. For more information, contact us at chief_economist@freddiemac.com
Freddie Mac is a stockholder-owned company established by Congress in 1970 to support homeownership and rental housing. Freddie Mac fulfills its mission by purchasing residential mortgages and mortgage-related securities, which it finances primarily by issuing mortgage-related securities and debt instruments in the capital markets. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than four million renters in America.
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