|Fifty-seven percent of loans that were refinanced during the second quarter of 2001 took five percent or more of the equity out of their homes, according to Freddie Mac's quarterly refinance study. This compares to 52 percent in the previous quarter.
Freddie Mac, like its sister organization -- Fannie Mae -- is a government sponsored enterprise and one of the two largest housing finance institutions in the United States. Freddie plays a major role in creating a ready supply of mortgage funds by buying mortgages from commercial banks, thrift institutions, mortgage banks, and other primary lenders, and either holding them in its own portfolio or packaging them into mortgage-backed securities for resale to investors.
Freddie's estimates come from a sample of properties on which it has funded at least two successive loans. For the generation of the refinance statistics, transactions are further screened to ensure they are refinances rather than sales.
Freddie Mac's quarterly review also found that the median age of the refinanced loans was 2.6 years, versus 1.6 years last quarter, and 6.4 years in the second quarter of 2000.
Vassilis Lekkas, principal economist for Freddie Mac, said "We are once again seeing an uptick in refinancings.
"When mortgage rates are low, homeowners have an incentive to refinance for that lower rate. Many borrowers find they can also take tap into their equity while not raising substantially the cost of their monthly payments, making it seem even more desirable to refinance."
Recent turmoil in developing countries continues to put downward pressure on U.S. Treasury yields, where investors seek safe haven. As a result, mortgage rates -- which closely follow the 10-year Treasuries -- have been falling since early July. With the average 30-year fixed rate mortgage now below 7%, consumers are applying for mortgage loans at a current rate that is 53% higher than last year.
Fannie Mae economist Orawin Velz recently said, "People have lots of other motivations today--they want to buy cars and other consumer goods. So I wouldn't be surprised if refi volume jumped up again in a short burst in the coming few weeks."