Homeowners Continue Shift Away from Cash-Out Refinancing

by devteam February 3rd, 2012 | Share

Homeowners who refinanced their homes during the fourthrnquarter of 2011 either refinanced for about the same amount or actually broughtrncash to the table according Freddie Mac. rnFewer than 15 percent of those who refinanced during the quarterrnincreased their loan amount by 5 percent or more.  This is the lowest percentage of “cash-out”rnborrowers in the 26 years that Freddie has been tracking the statistics.  During those 26 years covering 1985 to 2010rnthe average percentage of cash-out borrowers was 46 percent.</p

Thirty-seven percent of refinancing homeowners took out newrnloans of approximately the same size as the old loan but nearly half (49rnpercent) actually brought cash to the table, reducing the amount of the newrnloan to a median ratio of .74 of the old loan. rnThe percentage of “cash-in” borrowers is also a 26-year record.</p

The fourth quarter figures are a stark contrast to thernpattern of refinancing during the last years of the housing boom.   Duringrneight consecutive quarters (Q4 of 2005 to Q3 of 2007) cash-out loans exceededrn80 percent of all refinancing and in none of those quarters did more than 8rnpercent of homeowners reduce the size of their mortgages when refinancing.</p

Borrowers who refinanced achieved a new interest rate aboutrn1.4 percentage points lower than their old mortgage, a 26 percent improvement.  These borrowers will save a median of $2,700rnduring the first year if they have a $200,000 loan.</p

The 15 percent who did cash out took an estimated $5.5rnbillion in net equity out of their homes, representing 3.0 percent of the totalrnrefinanced.  This was down from $5.6rnbillion and 3.7 percent in the third quarter. rnAdjusted for inflation this was the lowest level since the third quarterrnof 1995.  During the peak period forrncash-out refinancing, the second quarter of 2006, homeowners cashed out $83.7rnbillion through refinancing, 31.1 percent of the total value of all transactions.   </p

Freddie Mac said that the mortgages refinanced had been inrnplace for a median of four years and the underlying collateral had decreased inrnvalue by a median of 4 percent during that time.  The Freddie Mac House Price Index shows aboutrna 23 percent decline in its U.S. series during that four year period.  Thus, Freddie Mac says, “Borrowers who refinanced inrnthe fourth quarter owned homes that had held their value better than thernaverage home, or may reflect value-enhancing improvements that owners had madernto their homes during the intervening years.” rnThis statement does not seem to recognize the possibility thesernborrowers had been able to refinance solely because their homes had held valuernand thus self-selected their loans for analysis.   

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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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