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Freddie Mac: FRMs still dominate refi market.

Fixed-rate mortgages continued to strongly dominate the refinance market during the third quarter of 2007 even as many homeowners who had flirted with adjustable-rate mortgages refinanced back into a fixed-rate loan, according to a survey by Freddie Mac.

Freddie Mac's Refinance Product Transition Report noted that 85 percent of borrowers in the third quarter who originally had a 1-year ARM chose a new FRM when they refinanced, and 82 percent of borrowers that initially had a hybrid ARM refinanced into a FRM, compared with 86 percent and 85 percent, respectively, in the second quarter.

"Mortgage rates on 30-year, fixed-rate, conventional conforming loans became more favorable during the third quarter after topping out at 6.7 percent in July," said Amy Crews Cutts, deputy chief economist for Freddie Mac. "Although the spread between the 30-year fixed-rate and 15-year fixed-rate mortgages did not move significantly in the third quarter, more borrowers replaced their 15-year fixed-rate mortgages with 30-year fixed-rates when they refinanced."

The report indicates that 58 percent of borrowers who originally had a 15-year FRM switched to a 30-year FRM when they refinanced in the third quarter--the highest percentage since the start of Freddie Mac's quarterly series in 2002, according to Cutts.

The rate was 53 percent in the second quarter, and only 8 percent in the third quarter of 2002. Conversely, only 5 percent of borrowers with 30-year fixed-rate loans chose 15-year fixed-rate when they refinanced in the third quarter--the lowest level since the first quarter of 2002.

The report also noted that refinancing into the 30-year FRM among borrowers who originally had an adjustable-rate or another fixed-rate loan increased in the third quarter of 2007 relative to the second quarter of 2007.

However, fewer borrowers who originally had a balloon mortgage switched into a 30-year FRM compared with the second quarter of 2007, and the percentage of borrowers originally holding 30-year FRMs refinancing back into the same product stayed unchanged from the previous quarter.

Borrowers who originally had a one-year ARM, with interest-rate adjustments occurring on equal frequencies for the life of the loan, stayed with a one-year ARM product 5 percent of the time when they refinanced in the third quarter of 2007, up from a 4 percent share in the second quarter and a 2 percent share a year ago.

As with the previous quarter, 10 percent of one-year ARM borrowers switched into a hybrid ARM product in the third quarter, down from 12 percent in the third quarter of 2006, said Freddie Mac.

These estimates come from a sample of properties on which Freddie Mac has funded at least two successive loans. Transactions are further screened to verify that the latest loan is for a refinance rather than for a home purchase.
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Title Annotation:Briefing Book; Fixed-rate mortgages
Comment:Freddie Mac: FRMs still dominate refi market.(Briefing Book)(Fixed-rate mortgages)
Publication:Mortgage Banking
Geographic Code:1USA
Date:Jan 1, 2008
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