Homeowners Dramatically Lowered Their Mortgage Rates In 2001 As Housing Continued To Shore Up Economy
February 21, 2002
Refinance Activity Expected To Slow In 2002
McLean, VA - In the final quarter of 2001, 47 percent of Freddie Mac-owned loans that were refinanced resulted in new mortgages at least five percent higher in amount than the original mortgages, according to Freddie Mac's quarterly refinance review. This is comparable to the fourth quarter of 1998, when mortgage rates were under 7 percent as they are now, but well off from the fourth quarter of 2000 when 76 percent of refinancings were at least five percent higher than the existing mortgage loan.
"Over the course of the year, homeowners lowered their mortgage rates an astounding average of 115 basis points by refinancing their original mortgages," said Frank Nothaft, Freddie Mac chief economist. "And as mortgage rates hovered between 6½ percent and 7 percent in the last quarter of the year, homebuyers continued to take advantage of the opportunity to lower rates and, for many, to borrow on the equity in their home.
"We expect the refinance volume to decline over the course of 2002 because most families will take advantage of today's low rates rather than risk facing higher rates later in the year. The cash-out share of homeowners who refinance will rise as they are less interest-rate sensitive," said Nothaft. "Throughout the recession of the past year, the housing sector continued strong, helping to prevent the economy from slumping even more deeply."
Freddie Mac's quarterly economic forecast calls for 30-year fixed-rate mortgage rates (FRMs) to remain in the range of 6.75 percent to 7.25 percent for the rest of the year, and recent rates have drifted to just under 7 percent.
"In the fourth quarter of 2001, refinancings were around 66 percent of the market, compared to the fourth quarter 2000 when refinancings made up only about 31 percent of the market," added Nothaft. "We project that the refinance share will fall back to 30 percent of originations by the fourth quarter of 2002."
Freddie Mac's Conventional Mortgage Home Price Index shows the growth in the value of housing, on a national average, to be about 37 percent over the past 5 years. And Freddie Mac's economists forecast a continued annualized growth rate of about three percent for the next year.
Freddie Mac's quarterly refinancing review also found that the median age of the original loan was 3.1 years in the fourth quarter of 2001; in other words, about half of the loans paid off had been originated since the 1998 refinance boom. In contrast, the median age at payoff was 4.9 years in the fourth quarter of 2000. Properties refinanced during the fourth quarter 2001 experienced a median house-price appreciation of 13 percent, down from 27 percent in fourth quarter 2000.
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 that the latest loan is for refinance rather than home purchase. 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.
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Percentage of refinances resulting in: |
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5% Higher loan amount |
Lower loan amount |
Median ratio of old to new rate |
Median age of refinanced loan |
Median appreciation of refinanced property |
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Total U.S. |
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1997: |
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|
Q1 |
65% |
10% |
1.07 |
3.8 |
13% |
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|
Q2 |
69% |
10% |
1.02 |
4.3 |
16% |
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|
Q3 |
59% |
15% |
1.07 |
3.9 |
13% |
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|
Q4 |
55% |
17% |
1.12 |
3.9 |
13% |
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1998: |
|||||||
|
Q1 |
50% |
14% |
1.18 |
3.7 |
11% |
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|
Q2 |
53% |
15% |
1.17 |
4.5 |
11% |
||
|
Q3 |
46% |
18% |
1.16 |
4.2 |
9% |
||
|
Q4 |
45% |
21% |
1.20 |
4.1 |
9% |
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1999: |
|||||||
|
Q1 |
57% |
13% |
1.19 |
5.0 |
11% |
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|
Q2 |
58% |
14% |
1.17 |
5.3 |
13% |
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|
Q3 |
70% |
11% |
1.09 |
6.2 |
20% |
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|
Q4 |
78% |
9% |
1.02 |
6.0 |
23% |
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2000: |
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|
Q1 |
81% |
9% |
0.97 |
6.1 |
23% |
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Q2 |
81% |
8% |
0.95 |
6.4 |
26% |
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Q3 |
82% |
8% |
0.95 |
6.6 |
29% |
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|
Q4 |
78% |
9% |
1.00 |
4.9 |
28% |
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2001: |
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|
Q1 |
50% |
9% |
1.17 |
1.6 |
11% |
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|
Q2 |
57% |
9% |
1.17 |
2.6 |
15% |
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|
Q3 |
63% |
11% |
1.15 |
3.3 |
19% |
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Q4 |
47% |
20% |
|
1.21 |
3.1 |
13% |
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Source: Freddie Mac
Contact ALTA at 202-296-3671 or [email protected].