MAY 23, 2000
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FREDDIE MAC SURVEY FINDS REFINANCING HOMEOWNERS CONTINUE TO BORROW EQUITY FROM HOMES IN FIRST QUARTER 2000

Market Share of Refinancing Plummets in the Face of Rising Mortgage Rates

McLean, VA  –  In the first quarter of 2000, 79 percent of Freddie Mac-owned loans that were refinanced resulted in new mortgages at least five percent higher than the original mortgages, according to Freddie Mac’s quarterly refinance review. This contrasts with 57 percent in the first quarter of 1999..

“Although refinancing has dropped off, a larger share of those refinancing their mortgages took out equity,” said Vassilis Lekkas, principal economist for Freddie Mac. “As expected, climbing mortgage rates made refinancing less attractive in the first quarter of 2000, since most homeowners who were able to refinance their original loan did so in the recent past when mortgage rates were almost two points lower than they are now.”

The housing market is beginning to show signs of slowing from the all-time record pace it set over the last four years, but Freddie Mac economists are confident that 2000 will still see the second or third highest number of total home sales on record.

Mortgage rates during the remainder of 2000 are expected to stay in the range of 8½ percent to 8¾ percent, which, when compared to mortgage rates over the past 25-years, continue to be very affordable. These rates will, however, discourage a lot of refinancing activity in the coming year.

“In the first quarter of 2000, refinancings made up about 20 percent of the market; in the first quarter 1999, refinancings constituted about 50 percent of the market,” noted Lekkas.

Freddie Mac’s Conventional Home Price Index shows the growth in the value of housing, on a national average, to be about 27.6 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, which will keep housing as a good investment.

Freddie Mac’s survey also found that the median age of the original loan was 6.6 years in the first quarter of 2000, compared to 5.0 years in the first quarter of 1999. Properties refinanced during the first quarter 2000 experienced a median house-price appreciation of 27 percent, up from 11 percent in first quarter 1999.

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.