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Refinance Report from Freddie Mac Surprises to the Upside

[Nov 3, 2009.]


Freddie Mac has not been the purveyor of much good economic news over the past couple years. On the contrary, both Freddie Mac and Fannie Mae have been poster children for the Crash of 2008.

However, a recent report from Freddie Mac does contain some promising refinance news.

Good Job, Q3 Refinancers

As reported by the Wall Street Journal, homeowners who refinanced in the third quarter of 2009 saved $3.5 billion in mortgage payments by taking advantage of low mortgage interest rates. Approximately one half of refinance borrowers during that time period saved at least 17 percent of their yearly mortgage costs.

Tellingly, that $3.5 billion figure only represents first year savings--meaning that over the coming years, borrowers who refinanced in Q3 will save yet more.

As the economy shows signs of improving, the importance of refinancing cannot be underestimated, especially as it pertains to consumer spending, which jumped up 3.4 percent recently (and unexpectedly).

That 3.4 percent was good enough for the best consumer spending increase since the first quarter of 2007. And it serves as proof that refinancers did a good job in the third quarter, benefiting everyone through increased spending on goods and services other than the monthly mortgage payment.

Death of the Cash Out Refinance

Remember when taking cash out when refinancing was an automatic, anyone can use an extra 20 grand?

Those days are officially over. According to the Freddie Mac report, fully 64 percent of prime borrowers who refinanced a first mortgage maintained the same loan size or reduced their loan size.

While this trend certainly cannot be taken as a sign that the cash out refinance is dead or dying, the fact that prime borrowers are thinking more before borrowing more is a major change in the mortgage market.

And probably, all in all, another good sign.

Obama Home Affordability Refinance Program Not a Complete Waste

Also included in the Freddie Mac report was proof positive that the Obama Administration's Home Affordable Refinance Program has not been a total failure, as several analysts have claimed.

Although still nowhere near the numbers originally projected by the Obama people, Freddie Mac does note that 93,000 homeowners took advantage of the government mortgage assistance to get a refinance done.

This figure provides at least some encouragement for struggling homeowners that perhaps there is, sometimes, a light at the end of the tunnel, and foreclosure is not always a foregone conclusion.

That, too, can be viewed as a positive in a mortgage finance market that seems to respond as much to psychology as to reality, if not more.


About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.

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