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National Mortgage Professional
Apr 09, 2008

Fixed-rate mortgages dominate refinance marketMortgagePress.comFreddie Mac, prime borrowers, adjustable-rate mortgage, conforming hybrid ARM Freddie Mac announced that in the fourth quarter of 2007, 92 percent of prime borrowers who originally had a one-year conforming adjustable-rate mortgage (ARM) chose a new conforming fixed-rate mortgage when they refinanced, and 89 percent of prime borrowers who initially had a conforming hybrid ARM refinanced into a conforming fixed-rate loan as well. The comparable numbers in the third quarter were 85 percent and 84 percent, respectively. "The turmoil in the financial markets that started in August and continued through the fourth quarter led most mortgage lending institutions to tighten their underwriting standards and thus, some ARM products were either no longer available or came with more restrictions," said Amy Crews Cutts, deputy chief economist for Freddie Mac. "However, even with the financial market problems in the fourth quarter, conforming mortgage rates on all four of the ARM and fixed-rate products tracked by Freddie Mac's Primary Mortgage Market Survey fell by roughly one-quarter of a percentage point. With 30-year fixed mortgage rates averaging 6.2 percent over the quarter, many conforming mortgage borrowers found this product very attractive. Cutts also said: "The difference between 15-year and 30-year fixed mortgage rates is quite narrow at the moment. When these rates are within a half of a percentage point of one another we see borrowers are more inclined to choose the longer amortizing loan because of the large payment difference." The Refinance Product Transition Report indicates that 52 percent of borrowers who originally had a 15-year fixed-rate loan switched to a 30-year fixed-rate mortgage when they refinanced in the fourth quarter. The rate was 58 percent in the third quarter. Conversely, only seven percent of borrowers with 30-year fixed-rate loans chose 15-year fixed-rate loans when they refinanced in the fourth quarter. The report also shows that in the fourth quarter, 83 percent of borrowers who originally had a 30-year fixed-rate mortgage refinanced into another 30-year fixed-rate mortgage. This rate compares to 79 percent in the third quarter. More borrowers who originally had a hybrid ARM mortgage switched to a 30-year fixed-rate mortgage, compared to those in the third quarter of 2007. The share of borrowers who originally had a balloon and refinanced into the same product rose to 12 percent in the fourth quarter from two percent in the previous quarter. Borrowers who originally had a one-year ARM, with interest-rate adjustments occurring on equal frequencies for the life of the loan, stayed with a one-year ARM product three percent of the time when they refinanced in the fourth quarter of 2007, down from a five percent share in the third quarter and a two percent share one year ago. Three percent of one-year ARM borrowers switched into a hybrid ARM product in the fourth quarter, down from eight percent in the third quarter of 2007. These estimates come from a sample of properties on which Freddie Mac has funded at least two successive loans. Transactions are further screened to verify that the latest loan is for refinance rather than for home purchase. For more information, visit
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