The Psychology Behind the Recovery

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40 | Th e M Rep o RT o r i g i nat i o n s e r v i c i n g a na ly t i c s s e c o n da r y M a r k e t 2013 refinancers Projected to save $21B over 2014 Freddie Mac's latest quarterly report projects a decline in refinance share to 38 percent this year. B orrowers who refinanced last year will save on net about $21 billion in inter- est over 2014, according to the results of Freddie Mac's latest quarterly refinance analysis. The company's report shows the average interest rate reduction among refinancers in the fourth quarter was about 1.5 percentage points, translating into a savings of about 25 percent. Those who refinanced through the Home Affordable Refinance Program (HARP) during Q 4 saw an average rate reduction of 1.7 percentage points. The median age of original loans outstanding before refinance was seven years last quarter, the highest since Freddie Mac began conducting its analysis in 1985. The increase in age reflects the low-rate period the market has experienced in the past four years, which gives few homeowners with recent loans much incentive to refinance, the company says. In fact, it seems fewer home- owners overall were as interested in refinancing in the fourth quarter as they had been in the last several years. "[T]he refinance boom contin- ued to wind down as the pool of potential borrowers declined and as mortgage rates increased during the second half of 2013," said Frank Nothaft, VP and chief economist for Freddie Mac. The GSE projects refinance share this year will continue to fall, slipping to 38 percent of all originations as "the emerging purchase market consumes a big- ger piece of the pie." Of those who did refinance last quarter, more than 95 per- cent chose a fixed-rate loan, with those products being preferred regardless of what the original loan had been. For example, 94 percent of borrowers who previ- ously had a hybrid adjustable- rate mortgage (ARM) refinanced into a fixed-rate loan, while only 3 percent went in the opposite direction. Freddie Mac also found 39 percent of last quarter's refinanc- ers opted to shorten their loan term, up 2 percent from Q 3 and the highest level since 1992. About 56 percent of borrowers kept the same term as the loan they paid off, and only 5 percent lengthened their term. Meanwhile, the net dollars of home equity converted to cash as part of a refinance remained low in comparison to histori- cal volumes. According to the report, an estimated $6.5 billion in home equity was cashed out during refinances of conventional prime-credit home mortgages in Q 4, down from a peak of $84 billion during Q2 2006. Adjusted for inflation, Freddie Mac says annual cash-out volumes from 2010 through 2013 have been the smallest since 1997. ORIGINATION the latest

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