The share of refinances and cashouts increased during the third quarter -- though the dollar volume sank.
Out of all residential mortgage fundings during the latest quarter, 45 percent were refinances, climbing from 42 percent in the second quarter, according to Freddie Mac's quarterly refinance survey announced today. Fourth quarter refinance share is projected to remain around the same level. Third quarter refinance transactions totaled around $69 billion, down from approximately $97 billion in the second quarter.
"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 said.
Cashout transactions of $60.1 billion accounted for 87 percent of the period's refinances, the report indicated. The cashout share was 84 percent during the second quarter, representing $81.4 billion in transactions.
Freddie's analysis of mortgages where it has funded at least two successive refinances considers a transaction to be cashout if the balance increases by at least 5 percent after the refinance. Despite falling values and tougher qualifying, around $10 trillion in home equity is still available to U.S. homeowners.
About half of third quarter refinances boosted their interest rate by at least 5/8 percent, the McLean, Va.-based company said.
The 30-year fixed rate is projected by the secondary lender to average between 6.3 percent and 6.7 percent for the rest of the year, while the 1-year Treasury-indexed adjustable-rate mortgage is forecast to stay near 5.5 percent.
Freddie's chief economist, Frank Nothaft, explained that as conforming rates peaked at 6.7 percent in July, the spread between jumbo rates and conforming rates jumped.
Property values on loans Freddie analyzed rose 26 percent from the first transaction to the second, up from 24 percent appreciation in the second quarter. One reason for the increase is that the median seasoning on the loans in the report was nearly four years, indicating initial values were from around 2003 -- well before appreciation had slowed.