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The Key to a Successful Internet Mortgage Company

National Mortgage Professional
Dec 07, 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 percent. "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 does." 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. For more information, visit
Dec 07, 2004
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