HOMEOWNERS CONTINUING TO INCREASE THEIR LOAN BALANCES WHEN REFINANCING, ACCORDING TO LATEST FREDDIE MAC STUDY

Near Record Low Mortgage Rates Encourage Homeowners To Refinance

McLean, VA - Freddie Mac today reported that 63 percent of borrowers who refinanced single-family mortgages during the third quarter of 2001 increased their loan balances by five percent or more, compared to a revised 58 percent in the previous quarter. The findings were released as part of Freddie Mac’s quarterly refinance study. Proceeds from these higher balances are used for a variety of purposes, including home improvement, debt consolidation, and investment. The study also found that 11 percent of those mortgages refinanced were for an amount less than the original loan

Low mortgage rates have contributed greatly in keeping the housing sector of the economy operating at a brisk pace, helping to bolster the sagging national economy.

“As mortgage rates continued to fall in the third quarter, and average home values continued to rise, many homeowners found it advantageous to increase the amount of their loans when they refinanced,” said Vassilis Lekkas, principal economist for Freddie Mac. “These refinanced mortgages are at lower rates than the homeowners’ original loans, helping to further reduce the cost of housing.

A year ago at this time, 82 percent of refinanced loans also increased their loan balances . However, mortgage rates were higher and the volume of loans being refinanced last year was significantly less than today.

According to the results of the review, the median age of a typical mortgage refinanced was 3.3 years, and the home had appreciated an average of 19 percent. The 3.3 years median age was higher than it has been in previous quarters of 2001, but lower than it was in the third quarter of 2000.

“Although housing sales have slowed somewhat, 2001 will still be a banner year for originations,” noted Lekkas. “We foresee about $1.7 trillion originations – an all-time record high – and better than 50 percent of that market will be from refinancings.”

Freddie Mac’s Conventional Home Price Index shows growth in the value of housing, on a national average, to be about 36 percent over the last five years. However, Freddie Mac’s economists forecast that growth will slow in the later part of the year to only about two percent on an annualized basis, but will begin to rise to about four percent later in 2002.

The refinance statistics come from a sample of properties on which Freddie Mac has funded at least two successive loans. For the generation of the refinance statistics, 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.

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