Borrowers with adjustable-rate mortgages kept moving into fixed-rate mortgages in the third quarter, Freddie Mac (FRE) said this week.
Among borrowers with one-year, adjustable-rate mortgages who refinanced in the third quarter, 85% switched to fixed-rate loans.
The figure was slightly lower, 82%, among borrowers who refinanced out of hybrid ARMs, in which rates are fixed, sometimes at very low levels, for a longer initial period.
Those figures are little changed from 86% and 85% in the second quarter. They indicate that even the most creditworthy borrowers continue to shy away from riskier loans as home prices fall.
Freddie is chartered by Congress to buy mortgages from lenders, freeing them to make more loans. The estimates come from a sample of properties on which the company has funded at least two successive loans.
The vast majority of mortgages that Freddie buys are made to borrowers with good credit. So the data don't reflect what's happening in the subprime market, where many riskier borrowers with poor credit are having a hard time refinancing out of adjustable-rate loans because they face steep prepayment penalties or because they have fallen behind on payments once the rates reset at higher levels.
It didn't hurt that interest rates on rates on conventional, 30-year fixed-rate loans became more favorable during the third quarter, after topping out at 6.7% in July. Amy Crews Cutts, Freddie's deputy chief economist, said average 30-year fixed rates were 0.32 percentage points lower in September than in July.
Although the spread, or difference, between rates on 30-year and 15-year fixed-rate mortgages didn't move significantly in the third quarter, more borrowers replaced their 15-year loans with 30-year loans when they refinanced, Cutts added.
Of borrowers refinancing out of 15-year fixed-rate mortgages, 58% switched to 30-year fixed rate mortgages. That's up from 53% in the second quarter and is the highest rate since Freddie began tracking this data in 2002.
Conversely, only 5% of borrowers with 30-year fixed rate loans who refinanced switched to 15-year fixed-rate loans, the lowest level since the first quarter of 2002.