McLEAN, VA. — Freddie Mac announced last week that in the second quarter of 2007, 85 percent of borrowers who originally had a one-year adjustable-rate mortgage chose a new fixed-rate mortgage when they refinanced and 86 percent of borrowers that initially had a hybrid ARM refinanced into a fixed-rate loan as well.
The comparable numbers in the first quarter were 89 percent and 88 percent, respectively.
“Mortgage rates on 30-year fixed-rate loans went up in the second quarter to 6.4 percent, while rates on one-year Treasury-indexed ARMs were 5.5 percent in the Primary Mortgage Market Survey®,” said Amy Crews Cutts, deputy chief economist for Freddie Mac.
“While most borrowers still prefer to refinance into fixed-rate mortgage products, the widening spread between fixed- and adjustable-rate mortgages in the second quarter made ARMs a bit more attractive than they had been.
“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,” she continued in a release.
The Refinance Product Transition Report indicates that refinancing into the 30-year fixed-rate mortgage among borrowers who originally had an adjustable-rate or a balloon loan increased in the second quarter of 2007 relative to the first quarter of 2007.
However, fewer borrowers who originally had another fixed-rate product switched into a 30-year fixed and 80 percent of borrowers originally holding 30-year fixed-rate mortgages decided to refinance back into the same product, compared to 81 percent in the first quarter of 2007, and 78 percent a year ago, in the second quarter of 2006.
Borrowers who originally had a one-year ARM, with interest-rate adjustments occurring on equal frequencies for the life of the loan, stayed with a one-year ARM product 4 percent of the time when they refinanced in the second quarter of 2007, up from a 1 percent share in the first quarter and a 2 percent share a year ago.
Ten percent of one-year ARM borrowers switched into a hybrid ARM product in this quarter, up from 8 percent in the first quarter of 2007.
These estimates come from a sample of properties on which Freddie Mac has funded at least two successive loans. Transactions are further screened to verify that the latest loan is for refinance rather than for home purchase.
Freddie Mac plans to release the next quarterly Refinance Product Transition Report on Nov. 12.
Freddie Mac is a stockholder-owned corporation established by Congress in 1970 to support homeownership and rental housing.
Freddie Mac purchases single-family and multifamily residential mortgages and mortgage-related securities, which it finances primarily by issuing mortgage pass through securities and debt instruments in the capital markets.
