The Key to a Successful Internet Mortgage Company

The Key to a Successful Internet Mortgage Company

December 7, 2004

Cash-out refi share falls modestly in Q4 '04mortgagepress.comFreddie Mac, refinance review, 2004 figures, fourth quarter
In the fourth quarter of 2004, 56 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 in contrast to the third
quarter of 2004, when 59 percent of refinanced loans had higher new
loan amounts.
"The dip in 30-year fixed mortgage rates that happened in the
fourth quarter brought down the cash-out share of new refinancings
even though the total share of refis went up," said Frank Nothaft,
vice president and chief economist for Freddie Mac. "When
homeowners decide to refinance because of falling interest rates,
they might take cash out of home equity because it is convenient,
but it is not the main reason they are seeking a new loan. As
interest rates rise over this year we should see higher cash-out
shares among refi loans but total dollars cashed out should be
lower than in 2004."
Freddie Mac expects 30-year fixed mortgage rates will begin to
rise, but still remain modest, indicating that 2005 will likely be
another good year for housing. Thirty-year, fixed mortgage rates
will probably rise by about one-half of a percentage point over the
year, averaging between 6.1 and 6.3 percent in the fourth quarter,
up from an average of 5.7 percent over January. Because of these
slightly higher rates, home sales and home construction will come
down from the record levels of 2004, but only by one to three
"Applications for refinance hit 47 percent in the fourth quarter
of 2004," said Amy Crews Cutts, Freddie Mac's deputy chief
economist. "Recently, mortgage rates have come down below 5.7
percent so we are expecting relatively high refinance activity,
around a 45 percent share of new applications, to continue during
the first quarter of 2005. However, due to the small share of
outstanding mortgages with rates above 6.5 percent, it is unlikely
that the refi share will exceed 50 percent or stay there long if it
In the fourth quarter of 2004, the median ratio of old-to-new
interest rates was 1.13. In other words, one-half of those
borrowers who paid off their original loan and took out a new one
had an interest rate on their old loan that was at least 13 percent
higher than the new interest rate.
The Cash-Out Refinance Report also revealed that
properties refinanced during the fourth quarter of 2004 experienced
a median house price appreciation of 15 percent during the time
since the original loan was made, down slightly from the 17 percent
appreciation on loans refinanced in the third quarter. For loans
refinanced in the fourth quarter of 2004, the median age of the
original loan was 2.2 years, four months younger than the median
age of loans refinanced during the third quarter.
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