Cash Outs Now Account For Less Than 20% of Refis

by devteam August 2nd, 2012 | Share

Borrowers who refinance their loansrnthrough Freddie Mac continue to eschew cash out refinancing, tending instead tornreduce either the amount of their loan or leave it unchanged.  Freddie Mac released second quarter 2012 data</bon Wednesday, and 81 percent of homeowners who refinanced their first-lien homernmortgage either kept the loan amount constant or lowered the principal balancernby bringing cash to the closing table.</p

Of the 81 percent, 59 percent toornnew loans of approximately the same size and 23 percent reduced their principalrnbalance, the highest percentage in that category in the 27 years Freddie Macrnhas kept track.  In the first quarter 79rnpercent of borrowers maintained or lowered their loan amounts.  Freddie Mac reports this data from a samplernof properties on which it has funded two successive conventional first mortgagernloans, the most recent for refinance rather than purchase.  </p

Borrowers converted an estimated $5rnbillion in net home equity to cash through refinancing.  Adjusted for consumer-price inflation, thisrnis the lowest cash out amount since the second quarter of 1995.  By contrast, at the peak of cash-outrnrefinancing in the second quarter of 2006 homeowners cashed out $84 billion.</p

Freddie Mac said that Americans wererncontinuingrnto strengthen their fiscal house, but the austerity may be forced rather than arnmatter of prudence.  The properties refinanced had a median depreciation of therncollateral property of 16 percent since the purchase or most recent refinancernso many borrowers may have had no equity to withdraw.  The median age of the loan that wasrnrefinanced was 5.1 years, the oldest median in 13 years.  </p

There was a difference in the medianrnchange in property values and in loan age between loans refinanced through thernHome Affording Refinance Program (HARP) and other Freddie Mac loans.  As might be expected, persons refinancingrninto HARP loans had suffered a much larger depreciation than others whornrefinanced during the quarter.  Thernmedian depreciation for HARP loans was 34 percent.  When HARP loans were taken out of thernequation the median depreciation for other refinanced loans was only 2rnpercent.  Likewise the age of the loanrnwas longer for HARP, 5.5 years than for others in the sample, four years.  In order to be eligible for a HARP refinancernthe existing loan had to have been closed before June 1, 2009.</p

Thernmedian interest rate reduction for a 30-year fixed-rate mortgage was about 1.5rnpercentage points, or a savings of about 28 percent in the interest rate, thernlargest percent reduction recorded in the 27 years of analysis.</p

Frank Nothaft, Freddie Mac vicernpresident and chief economist said, “The enhancements to HARP announced inrnOctober, such as removing the maximum loan-to-value limit, resulted inrnadditional refinance volume during the second quarter. HARP loans were aboutrnone-third of Freddie Mac’s refinance fundings during the second quarter, thernhighest share since HARP’s inception.</p

“The typical borrower whornrefinanced reduced their interest rate by about 1.5 percentage points Notaftrnsaid.  “On a $200,000 loan, thatrntranslates into saving about $2,900 in interest during the next 12 months.”

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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