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ARM borrowers are choosing fixed-rate mortgages when they refinance
Data compiled by our Office of the Chief of Economist indicate that a large proportion of borrowers with adjustable-rate mortgages (ARM) turn to a fixed-rate product when they refinance. In the second quarter of 2007*, 85 percent of borrowers who originally had a 1-year ARM chose a new fixed-rate mortgage when they refinanced and 86 percent of borrowers that initially had an ARM with an initial interest rate period longer than a year refinanced into a fixed-rate loan as well. The comparable numbers in the first quarter were 89 percent and 88 percent, respectively. Three years ago, in 2004, these numbers were significantly lower at 74 percent and 43 percent respectively.
"With the recent contractions in mortgage lending standards and increasing emphasis on underwriting borrowers to fully indexed rates on adjustable-rate mortgages, it is likely that we will see more demand for fixed-rate products for both new home purchases and refinance in the future."** said Amy Crews Cutts, deputy chief economist for Freddie Mac.
* Freddie Mac's Refinance Product Transition Report, See Refinance Activities Reports
** Freddie Mac August 13, 2007 press release, Most ARM Borrowers Are Choosing Fixed-Rate Mortgages When They Refinance
Realize new possibilities with a traditional mortgage product
As the mortgage market faces continuing challenges, we have the advantages you need to realize new business possibilities with fixed-rate mortgage originations, and the seasoned fixed-rate mortgages you're holding in your mortgage portfolio, including opportunities to:
- Offer a prudent, stable mortgage product line, at the same time expand your borrower's options by combining a fixed-rate mortgage with a range of Freddie Mac special underwriting features and special offerings such as Home Possible®, to increase your origination volume in any market condition. Read how Home Possible Mortgages are playing an important role in today's market in this issue of Single Family News.
- Enhance your competitive secondary market options with both cash and securities executions.
- Effectively manage your retained mortgage holdings with seasoned fixed-rate mortgage sale solutions.
The fixed-rate mortgage offers stability, security, and simplicity in today's market
In today's market, the fixed-rate mortgage becomes an even more popular choice among borrowers because it helps them:
- Obtain the security of a stable monthly payment throughout the life of the loan even if interest rates fluctuate or inflation surges
- Leverage 15- and 20-year fixed-rate mortgages to build equity more quickly, or take advantage of a lower monthly payment with a 30- or 40-year fixed-rate mortgage.
- Maximize opportunities with more financing options to choose from, for a variety of property types, to meet their individual financial circumstances.
- Manage their budgets and investments better, knowing that their mortgage payments are fixed.
Solutions for your prime ARM borrowers facing interest rate adjustments
As many prime ARMs are adjusting for the first time, we offer you a variety of solutions that meet your borrower needs and build your business. Our competitive ARM adjustment solutions [PDF 556K] enable you to modify, convert, or refinance your existing prime ARM borrowers into a stable, fixed interest rate with ease – enhancing your customer relationships and reducing loan run-off.
- Seller-owned Modified Mortgages give you the flexibility you need to build long-term borrower loyalty, with requirements to help you easily sell mortgages you have held in your portfolio and modified before delivery to Freddie Mac. With this mortgage solution you can quickly meet your existing refinance borrowers' needs with a minimum of administrative details –offering you opportunities to streamline the origination process and reduce loan runoff from your servicing portfolio.
- Our Seller-owned Converted Mortgage requirements provide a streamlined process for selling converted ARMs, so that when market conditions change or you look to restructure your balance sheet, your sale process is quick, easy and profitable.
- Streamlined Refinance Mortgages are a fit for your borrowers looking to lower their rate and payment or refinance from an ARM to the security of a fixed-rate mortgage.
For more information and resources
Visit the following web pages that provide detailed information about the numerous possibilities with a fixed-rate mortgage, including options to refinance from an ARM to a fixed-rate mortgage:
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