CASH OUT REFINANCING UNCHANGED FROM LOW LEVEL OF PREVIOUS QUARTER

Homeowners Continue To Refinance Primarily For Low Rates, Not Cash

McLean, VA - In the third quarter of 2003, 32 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 third quarter of 2002, when 44 percent of refinanced loans had higher new loan amounts, and unchanged from the second quarter of 2003.

"The cash-out share of refinancing this quarter remained at the same historically low level of 32 percent as last quarter as homeowners continued to refinance primarily for the low rate, rather than to take money out of their homes," said Amy Crews Cutts, Freddie Mac deputy chief economist. "Over the past three months, mortgage rates began to rise slightly. Not surprisingly, we then started to see overall refinancing begin to fall off somewhat from previously record-high levels earlier in the year. Mortgage rates have not risen enough, however, to cause a slow down in the pace of the overall housing industry, and we continue to predict that 2003 will set new records for housing sales."

Freddie Mac's most recent quarterly economic forecast sees economic growth of about 4.6 percent during the second half of this year and about 4 percent for 2004. However, the sluggish job market will keep labor costs fairly stagnant, taking away a key component of price inflation. With inflation held at bay, mortgage rates should remain affordably low in 2004.

"Homeowners are increasingly becoming more financially savvy and sophisticated, following mortgage rates closely and taking advantage of rates that are at or near 45 year lows," stated Cutts. "The ratio of old interest rates to new, refinanced interest rates this quarter was the largest drop in mortgage rates that we have seen since 1987.

"In the third quarter, the median ratio of old-to-new interest rate was 1.29. In other words, at least half of those who paid off their original loan and took out a new one had an interest rate on their old loan that was 29 percent higher than the new interest rate."

Over the third quarter of 2003, homeowners who refinanced their mortgages lowered their rate on average 1.3 percentage points. On an average loan size of $140,000, that lower rate translates into a payment that is about $120.00 a month lower for a savings of more than $1,400 annually.

"In the first three quarters of this year, homeowners who refinanced took out an additional $95 billion as cash, much of which goes to further consumer spending," said Cutts.

Freddie Mac's Conventional Mortgage Home Price Index shows the cumulative growth in the value of housing, on a national average, to be about 40 percent over the past 5 years. Freddie Mac's economists have revised their forecast for home price appreciation to an annualized growth rate of about 4.9 percent for 2003.

The review also revealed that properties refinanced during the third quarter 2003 experienced a median house-price appreciation of three percent during the time since the original loan was made, down from 13 percent for loans refinanced in third quarter 2002. 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 analysis 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.

Percentage of Refinances Resulting in:

Quarter 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%

1.06

3.7

14%

Q2

71%

10%

1.00

4.1

17%

Q3

60%

14%

1.07

3.8

14%

Q4

52%

18%

1.10

3.4

13%

1998

Q1

45%

14%

1.16

3.2

10%

Q2

51%

14%

1.15

4.0

11%

Q3

48%

17%

1.15

4.0

10%

Q4

44%

20%

1.19

3.3

10%

1999

Q1

54%

13%

1.17

4.3

11%

Q2

56%

13%

1.14

4.7

12%

Q3

68%

11%

1.05

5.4

18%

Q4

77%

9%

0.98

4.9

21%

2000

Q1

80%

7%

0.94

5.0

22%

Q2

80%

8%

0.91

4.9

24%

Q3

81%

8%

0.92

4.6

26%

Q4

74%

11%

0.98

3.5

23%

2001

Q1

53%

8%

1.16

1.6

12%

Q2

60%

9%

1.15

2.5

16%

Q3

61%

10%

1.14

2.7

18%

Q4

47%

19%

1.19

2.8

14%

2002

Q1

61%

10%

1.16

3.4

18%

Q2

63%

10%

1.14

3.4

20%

Q3

44%

19%

1.19

2.9

13%

Q4

40%

22%

1.22

2.4

11%

2003

Q1

41%

13%

1.23

1.9

7%

Q2

32%

15%

1.26

1.7

3%

Q3

32%

18%

1.29

1.7

3%

Notes:

Higher loan amount refers to loan amounts that were at least 5 percent greater than the amortized unpaid principal balance (UPB) of the original loan. "Lower loan amount" refers to loan amounts that were less than the amortized UPB of the original loan.

Ratio of old to new rate refers to the ratio of the interest rate of the refinanced loan to the interest rate of the new loan.

These data can be found at www.freddiemac.com/news/finance. For more information, contact us at chief_economist@freddiemac.com

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