About 87 percent of Freddie Mac-owned loans that were refinanced during the third quarter resulted in new mortgages with loan amounts at least 5 percent higher than the original mortgage balances, according to a quarterly report. That compares with 84 percent in the second quarter and 88 percent in third-quarter 2007.
About 5 percent of refinances during the third quarter resulted in a lower loan amount — the same percentage recorded in the second quarter and in third-quarter 2006.
The percentage of refinances that resulted in a 5 percent or higher new loan amount hit a low of 33 percent in second-quarter 2003.
Homeowners cashed out about $60.1 billion in the third quarter, down from about $81.4 billion cashed out in the second quarter, a quarterly drop of about 26.2 percent, according to the Freddie Mac Cash-Out Refinance Report.
Cash-out refinancing is the process through which homeowners can take out a new mortgage at an amount that exceeds the balance on the existing mortgage to refinance that mortgage and receive cash for other use.
Amy Crews Cutts, Freddie Mac deputy chief economist, said in a statement that Freddie Mac expects the share of mortgage refinance originations to remain roughly flat in the fourth quarter compared to the third quarter, at about 45 percent.
“Recent events in financial markets may make it harder for some borrowers to qualify for cash-out refinancing, and declining home values will also limit options for some borrowers, however, in the aggregate, homeowners have about $10 trillion in home equity available according to the Federal Reserve Board,” Cutts stated.
The report revealed that homes refinanced during the third quarter had a median price gain of 26 percent since the original loan date, compared with 24 percent appreciation for the second quarter and 33 percent for third-quarter 2006.
The median age of the original loan for loans refinanced during the third quarter was 3.9 years, compared with 3.5 years in the second quarter and 3.3 years in third-quarter 2006.
Estimates are based on a sample of properties on which Freddie Mac has funded at least two successive loans, and transactions are screened to verify that the latest loan is for a refinance rather than for home purchase.
The 30-year fixed conforming mortgage rates averaged 6.7 percent in July — the highest monthly level this year, before dropping later in the quarter, noted Frank Nothaft, Freddie Mac vice president and chief economist.
Meanwhile, rates for jumbo mortgages — those mortgages that exceed the industry-standard conforming loan limit, which is $417,000 for most states — rose to an average of 7.4 percent for 30-year fixed loans in August, which reduced the overall refinancing volume.
Nothaft stated, “We continue to expect refinancing activity to slow, and the borrowers we are likely to see refinance will be those with resetting adjustable-rate mortgages and those who have had their homes long enough that recent house-price declines are not a serious threat to equity.”
Freddie Mac expects 30-year fixed mortgage rates to average from 6.3 percent to 6.7 percent for conforming loans over the rest of 2007 and initial rates on one-year U.S. Treasury-indexed adjustable-rate mortgages to range around 5.5 percent, according to the report.
The median ratio of new-to-old interest rate was 1.11 in the third quarter, meaning that half of those borrowers who paid off their original loan and took out a new one increased their mortgage coupon rate by 11 percent, or roughly five-eighths of a percentage point at today’s level of 30-year fixed mortgage rates.
