AUGUST 16, 2000
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Most Current Refinances Are For Extra Cash

Volume of Refinancing Continues to Decline in Second Quarter

McLean, VA  –  In the second quarter of 2000, 83 percent of Freddie Mac-owned loans that were refinanced resulted in new mortgages at least five percent higher than the original mortgages, according to Freddie Mac's quarterly refinance review. This contrasts with 58 percent in the second quarter of 1999.

"Freddie Mac's quarterly survey showed that refinancing continued to decline as mortgage rates rose during the first half of the year," said Vassilis Lekkas, principal economist for Freddie Mac. "But as the volume declined, the percentage of homeowners taking out some of the equity in their homes rose to rival those of the refi boom of 1988-1990 when mortgage rates first began to fall from the extraordinarily high levels of the 1980s.

"The survey also showed that the median age of a refinanced loan was 6.6 years, and the median appreciation rate of that property was a healthy 27 percent."

The housing market continues to show signs of slowing from the all-time record pace it set over the last four years, but Freddie Mac economists are confident that 2000 will still be a good year for the housing sector of the economy.

Freddie Mac's quarterly economic forecast calls for 30-year fixed-rate mortgage rates (FRMs) to remain in the range of 8 percent to 8¼ percent for the rest of the year, and recent rates have hovered around 8 percent. Lower mortgage rates could encourage an increase in refinancing in the third quarter.

"In the second quarter of 2000, refinancings dropped to about 15 percent of the market compared to the second quarter 1999 when refinancings constituted about 34 percent of the market," noted Lekkas.

Freddie Mac's Conventional Home Price Index shows the growth in the value of housing, on a national average, to be about 27.6 percent over the past 5 years. And Freddie Mac economists forecast a continued annualized growth rate of about five percent for at least the next year, which will keep housing as a good investment.

Freddie Mac's survey also found that the median age of the original loan was 6.6 years in the second quarter of 2000, compared to 5.0 years in the first quarter of 1999. Properties refinanced during the second quarter 2000 experienced a median house-price appreciation of 27 percent, up from 11 percent in first quarter 1999.

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 they are refinances rather than sales. 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.