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FEATURE ANALYTICS Freddie Mac's Refi Reports Hidden Gems: Interpreting the GSE's refinance reports can be challenging, but if evaluated properly, the statistics can be a strong ally for lenders and originators. By Mark Lieberman O F f the myriad public reports about the housing sector and mortgage industry, the quarterly reports from Freddie Mac on refinance activity offer unique insights not only into the level of refinance lending, but also what that activity tells us about the housing sector. And, if you know how to read them, the reports can offer strate- gic clues for the savvy lender. First, the Basics reddie Mac compiles data on loans it purchases that refinance loans in its portfolio. The data are used to produce two reports: the "Cash-out Refinance Report" and the "Refinance Product Transition Report." Both are released quarterly. The reports have a long and successful track record. The Cash- out Refinance Report dates back (annually) to 1986 and since Q1 1997 has been produced quarterly. The annual and quarterly cash- out volume series are covered from 1993 Q1 to the present. The Refinance Product Transition Report annual statistics are pub- lished for the period 1990 to the present. Quarterly statistics are presented for the past 20 quarters, e.g., 2006 Q4 through 2011 Q4. The reports are published about 30 days after quarter's end, making them quite timely and thus even more useful for stra- tegic planning. While previously released data is revised, the revi- sions are usually small. (The re- visions are due to Freddie Mac's purchases of refinance loans originated in prior quarters. The additional data can cause the reported median and average statistics values to change.) The reports provide key information estimating the dol- lar volume of equity extracted through refinancing that, among other things, affects Freddie's own forecast of total prime con- ventional mortgage originations or refinance share changes. The Cash-out Refinance Report notes: • The percent of Freddie Mac- owned loans that were refi- nanced and resulted in new mortgages at least 5 percent higher in amount than the original mortgages; • The share that resulted in lower loan amounts; • The median ratio of the new loan interest rate to the old interest rate for fixed-rate mortgages; • The median age of the refi- nanced loan, and; • The median amount of appreci- ation on the property since the previous loan was originated. Data Do More than Describe the Housing Sector L oans refinanced into larger loans, for example, speak to a need to supplement lagging incomes—a consequence of the sharp reduction in jobs and hours worked in the Great Recession. As interest rates dropped, homeowners though could have drawn equity from their homes and maintained their previous payment. To be sure, loans refinanced into smaller loans allowed home- owners to reduce their monthly payments into more affordable payments, freeing cash for con- sumption. Personal consumption remains about 70 percent of the nation's gross domestic product. Matching new and old interest rates, of course, offers insight into the impact of interest rate changes on the market. Tracking the age of loans pro- vides critical information in the construction of prepayment models. THE M REPORT | 63 ORIGINATION SERVICING ANALYTICS SECONDARY MARKET