NOVEMBER 28, 2000
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Refinance Activity Continues To Wane In Third Quarter Of 2000

Taking Out Equity Remains The Primary Reason To Refinance

McLean, VA  –  In the third quarter of 2000, 83 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 70 percent in the third quarter of 1999. During the third quarter, only 9 percent of Freddie Mac-owned loans that were refinanced were for an amount lower than the original loan.

"The 30-year fixed-rate mortgage rate continued to be over 8 percent through most of the third quarter," said Vassilis Lekkas, principal economist for Freddie Mac. "As a result, the rate of refinancing activity in the housing industry was very moderate during that time period. In such an environment, borrowers that refinance do so to take advantage of the high house price appreciation and take equity out of their properties.

"The survey also showed that the median age of a refinanced loan was 6.8 years, and the median appreciation rate of that property was a robust 32 percent."

The economy continues to show signs of slowing as 2000 winds down to its finish, but Freddie Mac economists see nothing that comes even close to a recession occurring any time soon. Even with a gradual slowdown, the economy remains strong and the housing sector continues to function at a brisk pace.

Freddie Mac's quarterly economic forecast calls for 30-year fixed-rate mortgage rates (FRMs) to remain in the range of 7½ to 8 percent for the rest of the year, and recent rates have been steady and under 8 percent.

"In the third quarter of 2000, refinancings were about 19 percent of the market compared to the third quarter 1999 when refinancings made up about 21 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 29.7 percent over the past 5 years. And Freddie Mac economists forecast a continued annualized growth rate of at least five percent for 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 6.8 years in the third quarter of 2000, compared to 6.2 years in the third quarter of 1999. Properties refinanced during the third quarter 2000 experienced a median house-price appreciation of 32 percent, up from 20 percent in third 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.