AUGUST 14, 2000
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Refinance Sector Of Housing Continues To Shrink In Second Quarter

Homeowners Tend to Refinance 30-year Fixed Rate

McLean, VA  – Freddie Mac announced today that, according to its quarterly refinancing survey, approximately 15 percent of conventional mortgage applications in the second quarter of 2000 were for refinancing, down from 20 percent in the first quarter of 2000. In contrast, in the second quarter of 1999, nearly 36 percent of conventional applications were for refinance.

"Fixed-rate mortgage rates were above 8.25 percent for most of the first half of the year, resulting in very moderate refinancing activity " said Vassilis Lekkas, principal economist for Freddie Mac. "The recent mortgage-rate decrease to almost the 8 percent level can potentially increase refinancings during the third quarter.

"However, refinancing done during the second quarter was still done primarily to take out built-up equity to use for other purposes."

The survey found that refinancing into the 30-year fixed-rate mortgage (FRM) increased in the second quarter of 2000 from the first quarter 1999, among all other products surveyed, with 64 percent of borrowers originally holding 30-year fixed-rate mortgages deciding to refinance back into same product, compared to 57 percent in the first quarter of 2000, and 59 percent in the second quarter of 1999.

The survey revealed as well that 27 percent of borrowers originally holding 30-year FRMs decided to refinance into 15-year loans, decreasing from 33 percent in the first quarter 2000, and dropping from 31 percent in the second quarter of 1999.

Of borrowers refinancing 15-year FRMs during the second quarter 2000, 60 percent chose to stay with the same product, declining from 73 percent in the first quarter 2000, and 68 percent in the second quarter of 1999. Additionally, 32 percent of those with 15-year mortgages refinanced into a 30-year product, up from 21 percent in the previous quarter and also rising from 26 percent in the second quarter of 1999.

Additionally, 63 percent of those homeowners originally holding a 1-year ARM chose to refinance into a 30-year product, while 28 percent opted for the 15-year FRM. In the second quarter of 1999, 61 percent of those originally holding ARMs refinance into 30-year FRM while 26 percent went into the 15-year FRM.

The Freddie Mac study, which looks at loans homeowners choose when refinancing, is based on properties for which Freddie Mac purchased both the original and new loans.

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.