Freddie Mac reported today that, in the first quarter of 2007, 82% of Freddie Mac-owned loans that were refinanced resulted in new mortgages with loan amounts that were at least 5% greater than the original loan amount. This is unchanged from the fourth quarter of 2007, but down from the third quarter's 87%.

Freddie Mac Chief Economist Frank Nothaft attributed the relative strength to the mortgage rate levels that are favorable to home equity loans that are indexed to prime. At over a 2% differential, this "difference provides a big incentive to borrowers to use cash-out refinance as an alternative to home equity loans," he said.

The refinance share of applications averaged 46% in Q107, also unchanged from Q406, and up from 41% in Q306, reported the GSE.

The survey also noted the median ratio of new-to-old interest rate was 1.02.This means that half of the borrowers who paid off their original loans took out a new one that increased their mortgage coupon rate by 2% or more. This is an improvement from the fourth quarter's ratio of 1.06.

Dollar volume of equity cashed-out totaled $70.5 billion, according to Freddie Mac. This is down from a revised $77.0 billion cashed out in Q406. Cash-out refinance volume is expected to decline over the year as a result of reduced origination activity and a decline in the refinance share of originations.

Freddie Mac Deputy Chief Economist Amy Crews Cutts noted that most borrowers with prime ARMs that were scheduled to reset in 2007 have already done so. In September, the GSE calculated about $170 billion in prime ARMs outstanding were resetting this year. "As of March 2007, just over $30 billion of these loans remain active," Cutts said. 

The GSE's quarterly survey also revealed that properties refinanced in the first quarter experienced a median HPA of 24% since the time the original loan was made. This is compared with 27% in the fourth quarter and 33% in Q306. For loans refinanced, the median age of the original loan was 3.3 years, unchanged from the fourth quarter and third quarter.

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