FALLING MORTGAGE RATES ENCOURAGED REFINANCINGS FOR LOWER RATES DURING FINAL QUARTER OF 2000

Refinancing May Constitute Majority Of Mortgage Originations in 2001

McLean, VA -- In the final quarter of 2000, 78 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 is comparable to the fourth quarter of 1999, when mortgage rates were also below 8 percent as they are now, but down from the third quarter of 2000 when 82 percent of refinancings were at least five percent higher than the existing mortgage loan.

In contrast, only 9 percent of Freddie Mac-owned loans that were refinanced were for an amount lower than the original loan in the fourth quarter of 2000.

"In the fourth quarter of last year, the portion of refinancing that led to higher loan amounts decreased from the previous quarter," said Vassilis Lekkas, principal economist for Freddie Mac. "This is a direct result of the interest rate environment, which motivated a larger number of borrowers to refinance primarily to take advantage of lower rates rather than to take cash out of the property.

"In 2001, the portion of refinancings leading to higher loan amounts should continue to decline as refinancing volume increases."
Freddie Mac's quarterly review also showed that the median age of the refinanced loan was 4.9 years, and the property had appreciated 28 percent over that time.

Although the overall economy continues to slow, the housing sector remains vibrant going into the new year. Indeed, Freddie Mac economists predict that 2001 will be another record year in home sales.

Freddie Mac's quarterly economic forecast calls for 30-year fixed-rate mortgage rates (FRMs) to remain in the range of 7 percent to 7½ percent for the rest of the year, and recent rates have hovered very close to 7 percent.
"In the fourth quarter of 2000, refinancings were around 30 percent of the market, compared to the fourth quarter 1999 when refinancings made up only about 22 percent of the market," added Lekkas.

Freddie Mac's Conventional Home Price Index shows the growth in the value of housing, on a national average, to be about 30 percent over the past 5 years. And Freddie Mac's economists forecast a continued annualized growth rate of at least five percent for the next year, which will maintain housing as a good investment.

Freddie Mac's quarterly refinancing review also found that the median age of the original loan was 4.9 years in the fourth quarter of 2000, compared to 6.0 years in the fourth quarter of 1999. Properties refinanced during the fourth quarter 2000 experienced a median house-price appreciation of 28 percent, up from 23 percent in fourth 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.

###