Refinancings Are Expected To Decline

Writen by Martin Lukac

Frank Nothaft, chief economist for Freddie Mac, says that refinancings are expected to decline this year.

Nothaft predicts that refinancings will only make up around 30% of all mortgage applications by the fourth quarter of 2006. This is partly due to rising interest rates this year.

He pointed out that from 2001 to 2004, the nation was experiencing a refi-boom period, in which refinancings constituted over 50% of mortgage loans.

The predicted decline in refinancings will drag the overall mortgage loan volume down by 12% this year, according to Nothaft. He expects mortgages for home purchases to remain stable.

Many homeowners are taking a different look at refinancings. In 2003, a Freddie Mac survey indicated that 20% of homeowners refinanced to cash out equity in their homes.

"That's very different today," said Nothaft. "In the first half of this year, close to 90% of those who refinanced also engaged in cash out."

The dollar amount of equity extracted from homes due to refinancings hit an all time high in 2005 at $275 billion, according to Freddie Mac reports. The higher interest rates and declining volume of refinancings is expected to bring this number down to $125 billion in 2008.

Nothaft says that approximately $500 billion in first-lien ARMs are expected to reset in 2006 -- approximately 6% of all mortgages. The total amount of mortgage debt to reset this year is $1.2 trillion, or 15% of all loans.

Another economist for Freddie Mac, David Berson, said that a number of homeonwers have been able to build their credit through an ARM and then refinance on better terms before the adjustable-rate phase began.

"The bad news for those in the group who have not refinanced, it may mean they cannot," said Berson, pointing to outstanding debts or credit problems.

Martin Lukac represents http://www.RateEmpire.com and http://www.1AmericanFinancial.com, a finance web-company specializing in real estate and mortgage rates. We specialize in daily updates, mortgage news, rate predictions, mortgage rates and more. Find low home loan mortgage interest rates from hundreds of mortgage companies!