Cash refinancing plummeted once again as borrowers found it difficult to get approved. 30-year mortgage interest rates remain at a record low, but people who can get approved for home equity or cash out refinance loans are few and far between. Freddie Mac’s report indicated that the total mortgage portfolio declined significantly in March, dropping 9.1% on an annualized basis from February figures. This was the 3rd straight month that the portfolio decreased in size. The portfolio at the end of March was valued at $2.225 trillion. The annualized growth rate for the entire year is -4.4%. In February, Freddie Mac announced it would begin purchasing substantially all 120 days or more delinquent mortgages from its related fixed-rate and adjustable rate PCs, which totaled approximately $73 billion.
However, according to the Monthly Volume Summary issued by Freddie Mac, the mortgage related investment portfolio skyrocketed, increasing by an annualized rate of 35.5%. In February the portfolio was contracting at an annualized rate of 18.5. The surge in the size of the retained portfolio was partially a result of government sponsored enterprise’s purchase of single family mortgage loans that were 120 days or more delinquent from its PCs.
Home loan delinquencies in all of Freddie Mac’s categories dropped for the first time in the past year. 4.13% of single family mortgages were delinquent at the end of March compared to 4.20% in February and 2.41% in February 2009. The delinquency rate for the non-credit enhanced portion of the portfolio decreased from 3.20% in February to 3.18% in March and the credit enhanced portion dropped from 9.12% to 8.87%. Multi-family vacancies were also down slightly from 0.25% to 0.24%.
Freddie Mac also announced that, during the 1st quarter of 2010, one-half of borrowers who refinanced their conventional loans benefited from an interest rate reduction of at least 16 %. The Enterprise’s first quarter Refinance Report stated that the average borrower moved into a loan with a rate 0.9 percentage points lower than their old loan.
The majority of mortgage refinance activity during the period either kept their outstanding loan balance the same or reduced it as a result of the refinancing. 18% of borrowers were involved in cash out refinance transactions that put cash in to the transaction to reduce the balance. “Cash-out” borrowers, those who increased the home loan balance by at least 5%, represented 28% of new home loans. This is the second lowest percentage of cash-out mortgages in a quarter since Freddie Mac began tracking the data in 1985. The fourth quarter of 2009 had the lowest cash out figure at 24%. Through most of 2006 and 2007 over 80% of homeowners who refinanced increased the principal balance of their mortgages. The home equity cashed out in the first quarter of 2010 totaled $9 billion, the smallest quarterly inflation-adjusted amount since the third quarter of 2000. During the 2006-2007 period referenced above the cash-out numbers each quarter were in the $70-85 billion range. Freddie Mac attributed the decline in cash-out numbers to reduced home prices and tighter underwriting standards for loan-to-value ratios. The median appreciation of the collateral property was a negative 4% over the median prior loan life of 4.0 years.
Date is collected from a sample of properties on which Freddie Mac has funded two successive loans, and the latest loan is for refinance rather than for purchase. The analysis does not track the use of funds made available from these mortgage refinance loans. “Rates on thirty-year fixed-rate mortgages during the first quarter remained low, averaging 5.0% in Freddie Mac’s Primary Mortgage Market Survey®,” noted Frank Nothaft, Freddie Mac vice president and chief economist. “The median interest-rate savings for borrowers who refinanced their conventional loan in the first quarter was 0.9 percentage points. Refinances were about three-fourths of originations during the first quarter. In total, the lower rate translates into about $2 billion in interest savings for these borrowers over the first 12 months of the new loan.”
