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
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
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 www.freddiemac.com.