Household Refinancing Accelerates In First Quarter 2002
May 2, 2002
Low Mortgage Rates Entice Homeowners To Continue To Dip Into Equity
McLean, VA - In the first quarter of 2002, 61 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 in contrast to the first quarter of 2001, when 51 percent of refinanced loans had higher loan amounts and mortgage rates were comparable to what they were in the first quarter of 2002. In the fourth quarter of 2001, 48 percent of refinanced originations had higher new loan amounts.
"Mortgage rates remained very low and very affordable during the first 3 months of this year, slipping below 7 percent to make refinancing an attractive option," said Frank Nothaft, Freddie Mac chief economist. "Additionally, we saw the average value of homes grow by more than 7 percent nationally over the past year, which encourages homeowners to borrow some of the accrued equity in their home.
"On average, homeowners who refinanced their mortgages in the first quarter shaved over a percentage point off of their original loan. Most of these loans were for fixed-rate mortgages in which homeowners sought to take advantage of the historically low interest rates and secure them for the next 15 to 30 years." Freddie Mac's quarterly economic forecast currently calls for 30-year fixed-rate mortgage rates (FRMs) to hover just around 7 percent through the spring of the year at the least. Presently, Freddie Mac's weekly mortgage rate survey shows the 30-year FRM is still below 7 percent, enabling potential homebuyers to take advantage of generational low mortgage rates.
"In the first quarter of 2002, refinancings made up about half of new mortgages originated, compared to the first quarter 2001 when refinancings made up about 60 percent of the market," added Nothaft. "We project that the refinance share will fall back to around 30 percent of originations by the fourth quarter of 2002 as everyone who has an incentive to refinance most likely will have done so by then.
Freddie Mac's Conventional Mortgage Home Price Index shows the cumulative growth in the value of housing, on a national average, to be 37.1 percent over the past 5 years. Freddie Mac's economists forecast an annualized growth rate of 3 percent for the rest of the year. Our forecast indicates house-price growth will not be as robust as previous years as the effects of the "recessionette" filter into the housing market.
Freddie Mac's quarterly refinancing review also found that the median age of the refinanced loan was 3.8 years in the first quarter of 2002, more than double the median age of loans refinanced in the first three months of 2001. Only about 11 percent of mortgages refinanced in the first quarter of 2002 had lower new loan amounts. The review also found that properties refinanced during the first quarter 2002 experienced a median house-price appreciation of 17 percent during the time since the original loan was made, up from 11 percent for loans refinanced in first quarter 2001."
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.
More information on Freddie Mac can be found on the company's web site located at http://www.freddiemac.com.
| Percentage of Refinances Resulting In: | |||||
| Total U.S. |
5% Higher loan amount |
Lower loan amount |
Median ratio of old to new rate |
Median age of refinanced loan (years) |
Median appreciation of refinanced property |
|
1997: |
|||||
|
Q1 |
65% |
10% |
1.07 |
3.8 |
13% |
|
Q2 |
69% |
10% |
1.02 |
4.3 |
16% |
|
Q3 |
59% |
15% |
1.07 |
3.9 |
13% |
|
Q4 |
55% |
17% |
1.12 |
3.9 |
13% |
|
1998: |
|||||
|
Q1 |
50% |
14% |
1.18 |
3.7 |
11% |
|
Q2 |
53% |
15% |
1.17 |
4.5 |
11% |
|
Q3 |
46% |
18% |
1.16 |
4.2 |
9% |
|
Q4 |
45% |
21% |
1.20 |
4.1 |
9% |
|
1999: |
|||||
|
Q1 |
57% |
13% |
1.19 |
5.0 |
11% |
|
Q2 |
58% |
14% |
1.17 |
5.3 |
13% |
|
Q3 |
70% |
11% |
1.09 |
6.2 |
20% |
|
Q4 |
78% |
9% |
1.02 |
6.0 |
23% |
|
2000: |
|||||
|
Q1 |
81% |
9% |
0.97 |
6.1 |
23% |
|
Q2 |
81% |
8% |
0.95 |
6.4 |
26% |
|
Q3 |
82% |
9% |
0.95 |
6.4 |
28% |
|
Q4 |
76% |
10% |
1.02 |
4.9 |
27% |
| 2001: | |||||
|
Q1 |
51% |
9% |
1.17 |
1.6 |
11% |
|
Q2 |
58% |
9% |
1.17 |
2.7 |
15% |
|
Q3 |
60% |
11% |
1.16 |
3.0 |
18% |
|
Q4 |
48% |
20% |
1.21 |
3.1 |
13% |
| 2002: | |||||
| Q1 | 61% | 11% | 1.18 | 3.8 | 17% |
Source: Freddie Mac
Contact ALTA at 202-296-3671 or [email protected].