Cash-Out Refinance Share Rises in Third Quarter

For Immediate Release

November 06, 2007
Contact: corprel@freddiemac.com
or (703) 903-3933

Dollar Volume of Equity Cashed-Out Falls to $60.1 Billion

McLean, VA – In the third quarter of 2007, 87 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 second quarter of 2007 was 84 percent.

"Thirty-year fixed conforming mortgage rates averaged 6.7 percent in July, the highest level thus far this year, before easing in the latter half of the quarter" said Frank Nothaft, Freddie Mac vice president and chief economist. "At the same time, rates on jumbo mortgages became relatively much more expensive compared to conforming rates, rising to an average of 7.4 percent for 30-year fixed-rate loans in August. These higher rates during the first part of the third quarter put a damper on mortgage activity and reduced the overall volume of refinancing.

"We continue to expect refinancing activity to slow, and the borrowers we are likely to see refinance will be those with resetting adjustable-rate mortgages and those who have had their homes long enough that recent house price declines are not a serious threat to equity. For example, in the third quarter of 2007, the median time a borrower had the mortgage that was refinanced was 3.9 years and their median appreciation in home values was 26 percent over that time."

Freddie Mac expects 30-year fixed mortgage rates to average between 6.3 and 6.7 percent for conforming loans over the rest of 2007 and initial rates on 1-year Treasury-indexed ARMs to hover around 5.5 percent.

In the third quarter of 2007, the median ratio of new-to-old interest rate was 1.11. 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 11 percent, or roughly five-eighths of a percentage point at today's level of 30-year fixed mortgage rates.

"This quarter we saw $60.1 billion cashed out, down from a revised $81.4 billion cashed out in the second quarter of 2007," said Amy Crews Cutts, Freddie Mac deputy chief economist. "Based on what we've been seeing in the share of mortgage applications for refinance, we are expecting the share of mortgage refinance originations to remain about the same in the fourth quarter as we saw in the third, at about 45 percent.

"Recent events in financial markets may make it harder for some borrowers to qualify for cash-out refinancing, and declining home values will also limit options for some borrowers, however, in the aggregate, homeowners have about $10 trillion in home equity available according to the Federal Reserve Board."

The Cash-Out Refinance Report also revealed that properties refinanced during the third quarter of 2007 experienced a median house-price appreciation of 26 percent during the time since the original loan was made, up from a revised 24 percent in the second quarter 2007. For loans refinanced in the third quarter of 2007, the median age of the original loan was 3.9 years, 5 months older than the median age of loans refinanced during the second quarter of 2007.

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
	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
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	3.4	25%
200702	84%	5%	1.02	3.5	24%
200703	87%	5%	1.11	3.9	26%

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 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.

###