The 30-year, fixed-rate home loan -- the mortgage industry's old standby - is enjoying a fresh surge in popularity after losing ground last year to 15-year models, a study shows.
The trend suggests a marked change of heart among homeowners participating in the refinancing boom, economists and lenders said.
As interest rates plunged last year, many consumers refinanced into 15-year mortgages to pay off their loans more quickly. But this year, experts said, more consumers are interested in reducing their monthly payments, and 30-year mortgages entail smaller payments than 15-year loans.
In the first three months of this year, 49% of refinancing homeowners with 30-year mortgages picked the same sort of loans again, according to the study by the Federal Home Loan Mortgage Corp.
The share was up from 40% a year earlier -- and was higher than at any time since the third quarter of 1991.
Trend Widely Observed
Meanwhile, the percentage of refinancers with 30-year mortgages who picked 15-year loans plunged from 46% to 29%, the lowest since the first quarter of
1991.
The study was based on an examination of loans sold to Freddie Mac and was restricted to refinancings. But lending executives said a rise in the popularity of 30-year mortgages over 15-year loans has been evident across the board in recent months.
"It's been gradual, but it's very distinct," said John Delaney, chief executive of TransCoastal Mortgage Corp., Bellevue, Wash.
Some lenders welcome the shift. For example, companies that sell their new loans on the secondary market but continue to service them can earn fees longer with 30-year loans, said Judith Berry, chief financial officer of American Residential Mortgage Corp., La Jolla, Calif.
Some banks and thrifts, however, like to write 15-year loans and hold them because the loans can fit nicely with an institution's liabilities.
"We would much rather originate 15-year loans than 30-year loans," said Joseph Krull, chief financial officer of Standard Federal Savings Bank, Troy, Mich.
He said the 15-year loans are bound to become less popular as the refinance boom wanes because such loans appeal more to refinancers than to homebuyers. Many buyers gravitate to 30-year loans to keep monthly payments to a minimum.
Evidently, this year's crop of refinancing customers is increasingly taking the same stance.
Many of the homeowners are "people who are just making ends meet and are more concerned with their current financial situation," said Mark Zandi of Regional Financial Associates in West Chester, Pa.
These people may believe interest rates have bottomed out and that now is the right time to lock in a low-payment mortgage for the long haul.
The Right Choice for Some
On the other hand, 15-year refinances can still make sense for homeowners who are in sound financial situations and can afford to accept high monthly payments for a quicker loan payoff.
Mr. Zandi described this type of homeowner as a relatively affluent professional with little or no debt obligations other than a mortgage. For such a person, the 15-year mortgage is a natural.
The consumer "has paid down his credit card debt, paid off his student loans, no longer has a car loan, and is thinking about paying for his kids' college education or, further down the line, his own retirement. The mortgage is the last thing to go."
Two Types
Robert Van Order, Freddie Mac's chief economist, agreed with Mr. Zandi's assessment. "Two types of homeowners are refinancing," he said. "Those who refinance into 30-year mortgages want lower payments, while those preferring 15-year mortgages want to pay of their loans faster."
For now, at least, the first group appears to be carrying the day.
Freddie Mac Formalizes Policy Change On Forced Repurchasing of Mortgages
Freddie Mac has announced that it will no longer request sellers to repurchase a home or multifamily mortgage solely because it went delinquent within four months of its origination.
The announcement formalizes a policy that has been in existence at the agency for several years, said Robert Keyes, quality control manager of the Federal Home Loan Mortgage Corp.
Under the old policy, Freddie Mac assumed that a loan that went delinquent within four months of when it was originated was not of investment quality and demanded its repurchase by the seller.
Mr. Keyes said the agency has not asked for a repurchase because of the four-month default rule in over two years.
Freddie Mac continues to reserve the right to request repurchase for any loan it found to be below investment grade, Mr. Keyes said.
The move brings Freddie Mac into line with repurchase guidelines at the Federal National Mortgage Association and was in response to sellers' concerns about the rule.
