The FINANCIAL — Freddie Mac released on February 29 its monthly Insight & Outlook for February. This month’s Insight examines how much borrower education and counseling benefits homebuyers.
And the Outlook looks at how tepid real growth and a strengthening U.S. dollar will continue to restrain yields going forward resulting in lowered projections of both Treasury yields and mortgage rates. The Outlook also contains 2015 fourth quarter refinance statistics, according to Freddie Mac.
Data on 40,000 participants in Freddie Mac’s Affordable Gold Loans program indicated that borrowers who received classroom and home study counseling had reductions in their subsequent rates of serious delinquency of 26 percent and 21 percent, respectively.
The same data showed that borrowers who received individual counseling averaged a 34 percent reduction in their rate of serious delinquency.
The Federal Reserve Bank of Philadelphia’s five-year study [PDF] supports Freddie Mac’s belief in the benefits of pre-purchase homeownership counseling.
Furthermore, the experimental design employed by the Philadelphia Fed addresses some of the challenges faced by non-experimental studies and increases confidence in earlier research that documented the benefits of both homeownership education and counseling.
Expect the 30-year mortgage rate to average 4.1 percent in 2016 and 4.8 percent in 2017.
The combination of low mortgage rates and increases in home equity will incent some additional refinances in 2016. As a result, the company is raising its 2016 refinance projection share of originations to 40 percent.
Freddie Mac’s share of cash-out borrowers, defined as those who increased their loan balance by at least 5 percent, increased 4 percentage points to 43 percent in the fourth quarter.
Borrowers cut their mortgage rate by 110 basis points on average, or a 23 percent rate-reduction — in the fourth quarter. This rate reduction is high by historical standards; the average reduction is 13 percent.
More than 95 percent of refinancing borrowers chose a fixed-rate loan. Fixed-rate loans were preferred regardless of the type of the original loan. For example, 83 percent of borrowers with hybrid ARMs chose fixed-rate loans in the fourth quarter. Only 17 percent chose to refinance into another hybrid ARM.
Quote: Attributed to Sean Becketti, Chief Economist, Freddie Mac.
“Freddie Mac believes objective, unbiased homebuyer education and counseling can improve the ability of borrowers to make prudent homeownership and home financing choices. The benefit is likely to be greatest for first-time homebuyers, and, as a result, Freddie Mac requires financial literacy education for first-time homebuyers who take advantage of Freddie Mac’s low-down-payment program, Home Possible Advantage.
“Housing was one of the few bright spots in the economy last year, and we expect continued improvement in 2016. The imbalance between demand for housing and the supply of both houses and apartments has supported rapid growth in both house prices and rents. The gap between demand and supply will not be closed any time soon, thus we project continued house price appreciation in 2016.”