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Refinances in Second Quarter Reduce Mortgage Payments by $3.4 Billion in Coming Year

Cashout Refinancing At Lowest Share Since Third Quarter 2003

For Immediate Release

July 30, 2009
Contact: corprel@freddiemac.com
or (703) 903-3933


McLean, VA – In the second quarter of 2009, half of borrowers who refinanced their loan lowered their annual mortgage interest rate by at least 20 percent according to Freddie Mac’s quarterly Refinance Report. The new interest rate was about 1.25 percentage points below the old rate. In aggregate the interest-rate reduction adds up to about $3.4 billion in payment savings for these homeowners over the next year.

"Interest rates for fixed-rate conventional conforming mortgages hit 50-year lows during the second quarter of 2009. In Freddie Mac’s Primary Mortgage Market Survey® rates for 30-year fixed rate mortgages averaged just 5.03 percent over the quarter with 0.7 points, and twice hit an all-time weekly average low of 4.78 percent in April," noted Frank Nothaft, Freddie Mac vice president and chief economist. "A big part of the benefit of refinancing is the lower monthly payment that borrowers enjoy – the payment savings from ‘rate-and-term’ refinancing done during the quarter is about $160 a month on a $200,000 loan. But these borrowers also accumulate principal faster than they would have with a higher-rate loan even after taking into account the longer terms of the new loans. In aggregate, second-quarter refinancers will have about $200 million additional principal paydown after a year than they would have under their old loans.

"Fixed mortgage rates are still very low, although they have climbed up a bit from their April lows. We are anticipating more than one-half of originations to be for refinancing throughout the rest of the year as long as rates stay near their current levels of 5.25 percent."

The report also indicates that 62 percent of prime borrowers who refinanced a conventional, second-lien mortgage either kept the same principal balance or reduced it, up from a revised 57 percent in the first quarter. The share of refinance loans resulting in new loan amounts that were at least 5 percent higher than the paid-off second-lien mortgage balances fell to a six-year low of 38 percent in the second quarter; the first-quarter cash-out share was revised down to 43 percent.

"In the second quarter, about $25 billion in home equity was cashed out by homeowners when they refinanced their conventional prime-credit home mortgage. This is up a little less than $5 billion from the first quarter volume, but, importantly, the rise reflects the jump in the number of loans refinanced rather than an increase in the amount borrowers are cashing out per loan," said Amy Crews Cutts, Freddie Mac deputy chief economist. "Credit standards are quite strict today for cash-out refis, and borrowers need a significant equity cushion to contemplate equity extraction. That’s why cash-out volumes are 35 percent lower now than a year ago even though interest rates are so low."

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
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% 13% 0.82 2.0 6%
200402 43% 14% 0.83 2.0 8%
200403 60% 15% 0.88 2.5 17%
200404 57% 19% 0.88 2.2 16%
200501 64% 10% 0.89 2.4 18%
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 28%
200701 83% 5% 1.02 3.4 25%
200702 84% 5% 1.02 3.5 24%
200703 86% 5% 1.10 3.9 26%
200704 77% 8% 1.02 3.6 19%
200801 58% 9% 0.91 2.4 8%
200802 67% 9% 0.94 3.3 13%
200803 76% 9% 1.04 4.4 16%
200804 55% 17% 0.92 3.0 7%
200901 43% 13% 0.81 3.1 3%
200902 38% 16% 0.80 3.5 2%


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 new to old rate refers to the ratio of the interest rate of the new loan to the interest rate of the refinanced loan. Refinanced loans with adjustable-rate products are excluded.

Quarterly Cash-Out Volume for All Prime Conventional Loans
Quarter 1. Total Cash-Out Dollars as a Percentage of Aggregate Refinanced Originations UPB 2. Total Home Equity Cashed Out ($ billions) 3. Volume of Cash-out and 2nd Mortgages/HELOC Consolidation ($ billions)
200001 10.6% $5.6 $14.6
200002 11.8% $6.3 $15.0
200003 12.5% $6.6 $14.7
200004 11.0% $7.7 $16.1
200101 7.8% $12.5 $22.6
200102 9.6% $23.0 $38.5
200103 10.0% $20.7 $33.4
200104 7.2% $26.7 $41.0
200201 9.5% $28.7 $47.4
200202 10.8% $23.0 $36.0
200203 6.7% $25.5 $37.9
200204 5.9% $33.9 $49.4
200301 6.6% $35.2 $57.7
200302 5.9% $38.6 $59.3
200303 6.6% $43.5 $65.2
200304 10.5% $30.1 $42.6
200401 8.8% $26.3 $36.2
200402 9.8% $35.8 $48.1
200403 16.8% $38.3 $47.3
200404 15.1% $43.1 $55.3
200501 17.3% $48.1 $57.3
200502 20.7% $61.4 $71.0
200503 20.6% $73.9 $85.1
200504 25.3% $79.1 $87.8
200601 28.7% $74.4 $80.5
200602 31.0% $83.6 $89.5
200603 30.5% $80.8 $87.5
200604 25.9% $79.5 $89.0
200701 25.8% $74.1 $81.7
200702 26.4% $72.6 $79.8
200703 28.1% $52.2 $57.4
200704 23.0% $40.4 $46.8
200801 (E) 14.8% $29.5 $36.1
200802 (E) 18.3% $38.7 $46.0
200803 (E) 23.3% $25.1 $29.2
200804 (E) 14.1% $14.9 $19.6
200901 (E) 8.5% $20.6 $29.0
200902 (E) 8.3% $25.3 $35.6


Column 1. Indicates the share of newly refinanced mortgage debt balances that are due to equity-extraction through a cash-out refinance. It is the ratio of the value in Column 2 divided by our estimate of the refi dollar volume of prime first-lien mortgage originations.

Column 2. Indicates the dollar volume of equity cashed-out through the refinancing of prime, first-lien conventional mortgages. It is calculated using Freddie Mac's estimate of prime, conventional mortgage originations volume, the refi share of originations, and the values in Column 1 of this sheet. We do not estimate how much equity is taken out through the refinance of FHA or VA loans or through refinance loans originated in the subprime market

Column 3. Indicates the total increase in the principal balances of refinanced first-lien mortgages, inclusive of cash-out amounts, the consolidation of existing second mortgages or Home-Equity lines of credit into the first lien, and loan origination costs that are rolled into the principal balances. It is calculated using Freddie Mac's estimate of prime, conventional mortgage originations volume, the refi share of originations, and of the average increase in the principal balance from refinanced loans.

(E). Indicates the value is an estimate and is subject to revision. The primary sources of any revisions are adjustments to Freddie Mac's estimate of total refinance mortgage originations in the prime, conventional mortgage market.

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. © 2010 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.

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