Freddie Mac compiles statistics on loans it purchases that refinance loans in its portfolio and shares the data on the attributes of these refinance loans. Refinance Statistics are released quarterly.
The Freddie Mac's Refinance Activities Statistics cover Quarterly Refinance Statistics for the United States covering the period 1985Q1 to present; Annual Refinance Statistics for the United States and four Census Divisions (1985-present); Quarterly Cash-Out Volume Estimates for the United States (1993Q1-present); Annual Cash-Out Volume Estimates for the United States (1993-present); Quarterly Product Transition Statistics for the United States (2002Q1-present); Annual Product Transition Statistics for the United States (1990-present).
Freddie Mac publishes our Refinance Statistics approximately 30 days after quarter's end. Previously released data are revised, but usually revisions are small. The revisions are due to Freddie Mac's purchases of refinance loans originated in prior quarters. The additional data can cause the reported median and average statistics values to change.
Estimates of the dollar volume of equity extracted through refinancing can also change as our forecast of total prime conventional mortgage originations or refinance share changes or when we benchmark our estimates of refinance mortgage originations using the Home Mortgage Disclosure Act data that are released in September for the prior year. These forecasts are updated monthly in our monthly Outlook and, although we do not republish our forecast of cash-out volume, you can calculate the change in our forecast using the methodology described below.
The quarterly and annual refinance statistics include the percent of Freddie Mac-owned loans that were refinanced and resulted in new mortgages at least five percent higher in amount than the original mortgages, the share that resulted in lower loan amounts, the median ratio of the new loan interest rate to the old interest rate for fixed-rate mortgages, the median age of the refinanced loan, and the median amount of appreciation on the property since the previous loan was originated.
The quarterly and annual cash-out volume estimates include Total Cash-Out Dollars as a Percentage of Aggregate Refinanced Originations UPB; Total Home Equity Cashed Out ($ billions); Total Volume of 2nd Mortgages/HELOC Consolidation ($ billions); and Total Combined Volume of Cash-Out and 2nd Mortgages/HELOC Consolidation ($ billions).
The quarterly and annual refinance product transition data includes the distribution of loan products that borrowers chose when they refinanced their existing first-lien mortgage. For each type of loan held by borrowers initially, you can see what proportion kept the same product or opted for a different one. A total of six product categories are examined: 1-year adjustable-rate mortgages (ARMs; the data include some other types of equal-frequency rate-reset loans such as 3/3 and 5/5 ARMs, etc.), hybrid ARMs (ARMs with the first rate-reset period longer than subsequent rate reset periods, such as 3/1 ARMs, 5/1 ARMs, etc.), balloon mortgages (loans that have one interest-rate adjustment, such as 5/25s, etc.), 15-year fixed-rate mortgages (FRMs; includes data on some shorter term loans), 20-25 year FRMs, and 30-year FRMs.
When Freddie Mac first reported the interest-rate ratio, it was calculated as the original loan rate divided by the new-loan rate. Starting with the 2006Q3 report, we flipped the ratio to report the new interest rate divided by the original rate. The new ratio is more intuitive, as values less than one indicate that the borrower lowered his or her note rate, and values greater than one indicate that the rate increased.
This calculation, which is for prime conventional mortgages only, is based on Freddie Mac's estimates of total prime, conventional mortgage originations and our estimate of the refinance share of origination dollars. We also assume that homeowners with jumbo loans cash-out home equity in the same manner and with the same propensity to refinance as homeowners with conventional, conforming loans. We do not estimate the amount of equity taken out through new second mortgages, known as home-equity loans or home-equity lines of credit (HELOCs), nor do we try to estimate the cash-out amounts taken by borrowers who refinance in FHA market segments. We use the estimated share of new refinance loan balances that are the result of borrowers taking cash out (Column 1 in the worksheet) times our estimate of refinance originations volume to calculate the total cash-out dollar volume.
The estimate of actual equity converted to cash through refinance is shown in Column 2 of the worksheet, and is titled "Total Home Equity Cashed Out." This estimate applies to the prime, conventional first lien mortgage market, including the jumbo market. In Column 1 of the worksheet, titled "Cash-Out Dollars as a Percentage of Refinanced Origination Amount," we provide the average share of the dollars of new refinance originations that are due to the conversion of equity to cash. That is, if a borrower who originally had a $100,000 mortgage and lots of home equity cashes out $25,000 of that equity and gets a new mortgage equal to $125,000, then the share value for that borrower would be 20 percent; we average across all borrowers to arrive at the value shown in Column 1. Using this share number, the total volume of equity cashed out can be computed by multiplying the share times an estimate of the total dollars of refinance originations for the period of interest.
We assume for these purposes that home-equity loans (second liens) combined make up 20 percent of new mortgage originations. Based on our monthly Outlook, we would then take 80 percent times the conventional mortgage originations volume reported in the outlook times the refinance share of originations times the cash-out dollar share reported in Column 1 of the volume worksheet to arrive at a value for Column 2. Our monthly Outlook is updated each month; we do not refresh our forecast for cash-out volume between the quarterly releases. Many researchers do not make a distinction between prime or conventional versus FHA or VA borrowers, and produce their own estimates of cash-out volume using this methodology applied to their forecasts or estimates of market originations (see for example "Sources and Uses of Equity Extracted from Homes" by Alan Greenspan and James Kennedy, Finance and Economics Discussion Series: 2007-20, March 2007. This study is available on the website for the Board of Governors of the Federal Reserve System.)
Finally, Column 3, titled "Volume of Cash-Out and 2nd Mortgages/HELOC Consolidation", takes the value reported in Column 2 and adds to it our estimate of the dollar volume of second liens that were retired when borrowers refinanced their first lien mortgage. Thus, Column 3 represents the total dollar amount by which first liens increased when homeowners refinanced their loans, and represents the dollar equivalent to the share of borrowers that increased their loan amount by 5 percent or more reported in the quarterly and annual statistics pages of the Cash-Out Refinance Statistics. This number would not include payments made toward paying down second liens that were resubordinated during the refinance (for example, a borrower keeps open his or her HELOC, but brings the balance down to zero) because we only observe in our data if the second lien was closed out in the refinance process.
Freddie Mac reports the share of new mortgages used to refinance an existing loan that are at least 5 percent greater than the unpaid principal balance of the original loan as of the pay-off date. This is just a straight comparison of the new and old loan balances and only examines loans that Freddie Mac has purchased over time. Freddie Mac's and Fannie Mae's credit policy guidelines for lenders define a cash-out refinance loan as one that is either used to extract home equity (that is, the borrower receives a cash payment from the refinance settlement) or is used to pay off an existing second lien (for example, a home equity line of credit or home equity loan) that was not used in the purchase of the home. If a borrower used a piggy-back loan to purchase their home (for example, an 80 [percent first lien] - 10 [percent second lien] - 10 [percent down payment] loan structure) and later refinances these two loans into one new loan, this would not count as a cash-out refinance according to these policies. The Federal Housing Finance Agency (FHFA) uses data from both Freddie Mac and Fannie Mae in its calculations and uses the cash-out indicator based on Freddie Mac and Fannie Mae's credit policies to calculate the share of refinance loans that were for cash-out purposes. Thus, the FHFA data would not include data from refinances of second liens used in home purchases in its calculation of the cash-out share.
Opinions, estimates, forecasts and other views contained in this document are those of Freddie Mac's Economic & Housing Research group, do not necessarily represent the views of Freddie Mac or its management, should not be construed as indicating Freddie Mac's business prospects or expected results, and are subject to change without notice. Although the Economic & Housing Research group attempts to provide reliable, useful information, it 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. Information from this document may be used with proper attribution. Alteration of this document is strictly prohibited. ©2018 by Freddie Mac.
Insight | MAR 13, 2019
Research Note: U.S. households own real estate worth over $25 trillion and have mortgage debt of just $10 trillion for over $15 trillion in net homeowner equity.
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