Refinancing borrowers shun ARM loans in Q4 of 2008MortgagePress.comFreddie Mac, ARM, statistics, Q4 2008, Frank Nothaft, Refinance Product Transition Report
Freddie Mac has announced that in the fourth quarter of 2008, 97
percent of prime borrowers who originally had a conforming
adjustable-rate mortgage (ARM) chose a new conforming fixed-rate
mortgage when they refinanced, up from a revised 85 percent in the
third quarter. Furthermore, 99.7 percent of borrowers who had a
fixed-rate loan refinanced into another long-term fixed-rate loan,
up from a revised 97 percent in the third quarter.
"The very low interest rates for fixed-rate loans compared with
ARM rates in the fourth quarter, combined with worries that rates
may rise in the future when the economic recession ends, enticed
refinancing borrowers to seek the security of long-term fixed-rate
mortgages," said Frank Nothaft, vice president and chief economist
for Freddie Mac. "When borrowers can lock in a rate of five percent
or less for 15 years or longer, it's hard to find a reason not to
take it.
"During much of the fourth quarter, initial interest rates on
hybrid ARM loans were close to or above interest rates on 15-year
and 30-year fixed-rate mortgages. In that pricing environment,
fixed-rate loans appear very attractive to borrowers. As a
consequence, nearly all borrowers who refinanced chose a fixed-rate
loan."
The Refinance Product Transition Report indicates that only 3
percent of borrowers who initially had a hybrid ARM refinanced back
into that product, down from 15 percent who chose to refinance back
into another hybrid ARM in the third quarter. But overall, hybrid
ARMs were more popular in 2008 among borrowers who initially had
such loans than they were in 2007. Seventeen percent of hybrid ARM
borrowers refinanced back into a hybrid ARM in 2008 versus 14
percent in 2007. In contrast, refinancing borrowers who initially
held one-year ARMs chose fixed-rate mortgages over any ARM product
more often in 2008 than they did in 2007.
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.
