FREDDIE MAC SURVEY FINDS 77 PERCENT OF REFINANCES IN FOURTH QUARTER 1999 BORROWED ON HOUSING EQUITY

Annually, Nearly 60 Percent of Refinanced Mortgages Borrowed from Equity

McLean, VA -- In the fourth quarter of 1999, 77 percent of refinances resulted in new mortgages at least five percent higher than the original mortgages, according to Freddie Mac’s annual refinance review. This contrasts with 45 percent in the fourth quarter of 1998

Annually, 59 percent of refinancing homeowners in 1999 borrowed some of the equity in their homes, trading the old mortgage for a new mortgage at least five percent greater than the original loan. In comparison, 48 percent of refinancings in 1998 were for an amount higher by at least five percent.

"With interest rates rising in 1999, there were fewer and fewer homeowners refinancing their homes in order to reduce their payments," said Vassilis Lekkas, principal economist for Freddie Mac. "Instead, more of the refinancing that occurred was to take out built-up equity, something that the continuing robust housing market has enabled many consumers to do."

In 1998, Freddie Mac’s Primary Mortgage Market Survey tracked mortgage rates that dropped to generational lows, spawning a frenzy to refinance into lower rate mortgages. By 1999, mortgage rates started rising to more sustainable levels and most homeowners interested in only lower payments had already refinanced in the previous year. But with rates still very affordable in 1999, more refinancing borrowers chose to leverage the equity in their homes.

Freddie Mac’s Conventional Home Price Index shows the growth in the value of housing, on a national average, to be about 25.4 percent over the past 5 years. And Freddie Mac economists forecast a continued annualized growth rate of about five percent for at least the next year, keeping refinancing a viable option for many homeowners.

"Housing values will continue to grow as mortgage interest rates fluctuate between 8 percent and 8½ percent in 2000," noted Lekkas. "Therefore, we anticipate that a larger share of the refinancing segment of the mortgage market in the future will take out equity."

Freddie Mac’s survey also found that the median age of the original loan was 4.1 years in 1998, compared to 5.2 years in 1999. Properties refinanced during the 1999 experienced a median house-price appreciation of 13 percent, up from 10 percent in 1998.

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 they are refinances rather than sales. The Freddie Mac survey 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.

REFINANCES BY CENSUS REGION

Percentage of refinances resulting in: