Freddie Mac report: Refi borrowers choose the safety of fixed-rate mortgages in Q3 of 2008MortgagePress.comFreddie Mac, ARM, fixed-rate, Refinance Product Transition Report
Freddie Mac has announced that in the third quarter of 2008, 94
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 82 percent of prime borrowers
that initially had a conforming hybrid ARM refinanced into a
conforming fixed-rate loan as well. The revised comparable numbers
in the second quarter were 97 percent and 86 percent, respectively.
Furthermore, more than 95 percent of borrowers who had a fixed-rate
loan refinanced into another long-term fixed-rate loan.
"The elevated interest-rate volatility that has been a feature
of the capital markets in recent months has discouraged borrowers
from seeking adjustable-rate mortgages unless they have at least
several years worth of an initial fixed-rate period," said Frank
Nothaft, vice president and chief economist for Freddie Mac. "When
borrowers see so much change in interest rates it highlights the
payment risk that they may face from future rate increases. In the
third quarter alone, weekly average rates on one-year ARMs ranged
from a low of five percent to a high of 5.5 percent; with this
contract the borrower faces the uncertainty of not knowing what the
interest rate will be in one year. In contrast, while rates on 5/1
hybrid ARMs were slightly higher, ranging from 5.7 to 6.4 percent
in the third quarter, the borrower locks in that rate for five
The Refinance Product Transition Report indicates that while 18
percent of borrowers who initially had a hybrid ARM refinanced back
into that product, only 4 percent of borrowers who originally had a
30-year fixed-rate loan switched to an ARM loan, and all of those
borrowers chose a hybrid loan product.
These estimates come from a sample of properties on which
Freddie Mac has funded at least two successive loans and the latest
loan is for refinance rather than for home purchase.
For more information, visit www.freddiemac.com.