Majority of refinancers choose fixed-rate mortgages

Freddie Mac's Quarterly Product Transition Report found 95 percent of refinancing borrowers are choosing fixed-rate mortgages to take advantage of low mortgage rates.

The report showed refinancing borrowers were shortening their loan terms during the second quarter. Of the borrowers who paid off a 30-year fixed-rate loan, 40 percent chose a 15- or 20-year loan. Further, 63 percent of borrowers who had a hybrid ARM decided to refinance with a fixed-rate loan during the third quarter of 2011, as 37 percent chose to refinance with the same product they originally had.

In terms of future mortgage volume forecasts, iEmergent expects total residential mortgage lending volume to fall as far as 23 percent below the estimated $1.1 trillion in volume expected for 2011. The housing market is expected to continue struggling even if the economy starts to recover between 2012 and 2016.

"Many experienced economists and banking leaders believe that when GDP gets back on a modest growth track, pent-up home buying demand and a rapid growth in household formations will quickly trigger a home financing resurgence," said Dennis Hedlund, president of iEmergent. "American consumers no longer have the resources or the spending power to propel the economy out of danger. The longer that households struggle to stabilize the basic needs of their lives, the more their confidence in institutions and future economic opportunity will wane."

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