About 39 percent of Freddie Mac-owned loans that were refinanced in the second quarter of 2004 resulted in new mortgages at least 5 percent higher than their original mortgages, according to a Freddie Mac’s quarterly refinance review. That’s a drop from the 42 percent of refinanced loans in the first quarter that resulted in cash-outs.

During the second quarter, the 30-year fixed-rate mortgage hovered at about 6 percent, bringing about a gradual slowing of refinance activity.

“The very low interest rates that we saw in March, when 30-year fixed-rate mortgage rates averaged 5.4 percent, caused an increase in overall refinancing activity for the loans that closed in the second quarter,” said Amy Crews Cutts, Freddie Mac deputy chief economist. “When we see regular rate-and-term refinancings increase, the share of cash-out refis drops. Most homeowners are happy to reduce their monthly payments and don’t feel a need to withdraw equity, however, lower mortgage rates make home-equity conversion an affordable option for financing other investments such as home improvements or paying for college.”

Freddie Mac expects growth in U.S. Gross Domestic Product in the second half of 2004 of between 4 percent and 5 percent and a continuation of the low core rate of inflation. Freddie Mac expects 30-year fixed mortgage rates to average between 6 percent and 6.5 percent in the second half of 2004 and for the housing market to set a new record for home sales and housing starts.

“Higher mortgage rates in the second quarter reduced the refi share of mortgage applications to 40 percent,” Cutts said. “We expect to see a further reduction in the overall refi share through the second half of 2004 to between 30 and 35 percent. Cash-out refis will make up a larger share of those third and fourth quarter refinancings because most homeowners have already refinanced into very low rate mortgages over the past year. Based on our July outlook for mortgage originations and refi activity in 2004, we expect the amount of home equity cashed-out to total $71 billion. Total equity cashed out in the second quarter was $20 billion, down slightly from the first quarter cash-out amount of $23 billion.”

Over the second quarter, homeowners who refinanced their mortgages lowered their rate an average 0.97 percentage points, Cutts said.

The report also showed that properties refinanced during the second quarter experienced a median house-price appreciation of 6 percent during the time since the original loan was made, unchanged from loans refinanced in first quarter. For loans refinanced in the second quarter of 2004, the median age of the original loan was 1.8 years.

The information comes from a sample of properties on which Freddie Mac has funded at least two successive loans.


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