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Q1 Refis Cut $2.5 Billion off Mortgages

Statistics released by Freddie Mac show that in Q109 half of the borrowers who refinanced their mortgages lowered their annual interest rates by at least 20%. On a $200,000 loan, the average monthly payment lowered by $160. According to economists at the firm, the monthly savings adds up to about $2.5bn in extra spending cash in the pockets of those homeowners to spend over the coming year. “If this pace keeps up for the rest of 2009, that will provide homeowners about $10bn in mortgage-payment savings during the first year after refinance,” says Frank Nothaft, Freddie Mac vice president and chief economist. “In recent weeks mortgage rates in our weekly survey have stayed below 4.9% for a 30-year fixed-rate mortgage and when combined with the new streamlined refinance programs available to borrowers whose loans are owned by Freddie Mac or Fannie Mae, we expect refinance activity to be very high in the near term,” he adds. Nothaft feels programs such as these make it possible for borrowers with current loan-to-value ratios of up to 105% to qualify for a refinance whereas, traditionally, holders of such loans would be out of luck. Freddie Mac reports that the median ratio of new-to-old mortgage rate was 0.8, the lowest ratio since the third quarter of 2003, and corresponds to a new interest rate; 1.25 percentage points below the old rate. In the fourth quarter of 2008 the ratio stood at 0.92. The report also indicates that 58% of prime borrowers who refinanced a conventional, first-lien mortgage either kept the same principal balance or reduced it, up from a revised 45% in Q408. The share of refinance loans resulting in new loan amounts that were at least 5% higher than the paid-off first-lien mortgage balances fell to a five-year low of 42% in the first quarter; the Q408 cash-out share was revised down to 55%. The methods used to gain this information are not without limitations. Freddie Mac admits the estimates come from a sample of properties funded with at least two successive loans and may not be indicative of other situations. Freddie Mac analysis also does not track the use of funds made available from these refinances.

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