GSE-Backed Study: At 7%, Refis Die

If mortgage rates hit 7% the refi market will "evaporate," according to a new study commissioned by the Homeownership Alliance, which is funded in part by Fannie Mae and Freddie Mac.Written by Mark Zandi, chief economist for Economy.com, the study says that if rates rise to 6.5%, about one-third of borrowers will be eligible to refinance. According to figures compiled by National Mortgage News, refis account for about 65% of all loans funded. (The information is contained in NMN's Quarterly Data Report.) The new HA study says about $1.24 trillion in mortgage debt will be refinanced in 2002, compared with $1.2 trillion in 2001. "There is also worry over the potential for heightened credit-risk posed by the increased mortgage debt loads of cash-out borrowers," writes Mr. Zandi. But he says even if rates rise a bit, refis could continue strong in 2003 thanks to the growing popularity of adjustable-rate mortgages -- especially 3-1, 5-1, and 7-1 structures. Based in Washington, and managed by a former top aide to Sen. John McCain, R-Ariz., the Homeownership Alliance is bankrolled by other housing/mortgage-related groups as well as Fannie and Freddie. It can be found online at http://www.homeownershipalliance.com.