In a conference call with reporters Tuesday, Freddie Mac’s chief economist Frank Nothaft offered some insight into when and why people refinance their mortgages. Nothaft defines periods where refinancing constitutes more than 50 percent of mortgage loans as “refi boom periods.”

Since 1990, he said, there have been three such refinancing booms: 1992-’93, ’98 and 2001-04. With interest rates on the rise, Nothaft expects that by the fourth quarter of 2006, refinancing will constitute just 30 percent of the mortgage loan business. Although loans for home purchases are expected to remain stable, the shrinking market for refinancing means overall mortgage loan volume is expected to be down 12 percent this year.

Not only are fewer families refinancing, but they are doing so for different reasons. Freddie Mac’s surveys reveal that back in 2003, just 20 percent of families refinanced to cash out some of the equity in their homes. The rest were moving to lock in low interest rates or shorten the terms of their mortgages. “That’s very different today,” Nothaft said. “In the first half of this year, close to 90 percent of those who refinanced also engaged in cash out.”

Since fewer loans are being refinanced, however, the total dollar amount of equity extracted from homes each year actually peaked in 2005 at around $275 billion, and is expected to decline through 2008 to $125 billion, Freddie Mac reported.

Interest rates on some $500 billion in first-lien ARMs, or approximately 6 percent of all mortgage debt, will reset in 2006, Nothaft said. Factor in variable-rate home equity and second-lien loans, and the total amount subject to repricing this year is nearly $1.2 trillion, or about 15 percent of outstanding loans. While many families with adjustable rates will be feeling the squeeze of rising interest rates, those who haven’t yet refinanced may not have the option.

On the same conference call, Freddie Mae chief economist David Berson said many homeowners who took out subprime “2/28” mortgages — which carry fixed rates for two years, and are adjustable for the remaining 28 — were able to build up their credit by making payments for 24 months and then refinance on better terms. “The bad news is for those in that group who have not refinanced, it may mean they cannot” because of other debts or credit problems, Berson said.

Statistics from Tuesday’s conference call are available at the National Association of Home Builders’ Web site.

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