Freddie Mac reported that during the third quarter of 2005, 72% of Freddie-owned loans were refinanced into new mortgages with loan amounts that were at least 5% more than the original loan balances. While this percentage is unchanged from the second quarter, it represents an increase from the 64% level in the first quarter.

Freddie Mac's Chief Economist Frank Nothaft said the sharp increase in the cost of home equity lines of credit and expectations of even higher rates in the near future induced homeowners to tap into their home equity. Freddie Mac Deputy Chief Economist Amy Crews Cutts expects refinance volume overall to slow down while cash-out refis continue to be in demand, adding that equity extraction through refinancing should top $200 billion this year, declining to $114 billion in 2006.

The median ratio of old-to-new interest rate was 1.09, meaning half the borrowers who paid off their original loan had an original loan rate that was at least 9% higher than their new rate, according to Freddie Mac. Additionally, homeowners who refinanced in 3Q05 reduced their fixed mortgage rate an average of 57 basis points, translating into over $660 in annual savings on a $150,000 mortgage loan.

Properties that were refinanced in 3Q05 experienced a 23% price appreciation since the original loan was made, remaining unchanged from the second quarter, and up from 17% in 1Q05. The original loan's median age was 2.6 years versus 2.5 years in 2Q05 and 2.4 years in 1Q05.

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.