Homeowners Continue Shift Away from Cash-Out Refinancing

Homeowners who refinanced their homes during the fourth
quarter of 2011
either refinanced for about the same amount or actually brought
cash to the table according Freddie Mac. 
Fewer than 15 percent of those who refinanced during the quarter
increased their loan amount by 5 percent or more.  This is the lowest percentage of “cash-out”
borrowers in the 26 years that Freddie has been tracking the statistics.  During those 26 years covering 1985 to 2010
the average percentage of cash-out borrowers was 46 percent.

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

The fourth quarter figures are a stark contrast to the
pattern of refinancing during the last years of the housing boom.   During
eight consecutive quarters (Q4 of 2005 to Q3 of 2007) cash-out loans exceeded
80 percent of all refinancing and in none of those quarters did more than 8
percent of homeowners reduce the size of their mortgages when refinancing.

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

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

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

…(read more)

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