Cash-Out is King in Q2 Refi

Cash-out transactions accounted for 42 percent of refinance activities during the second quarter, according to new data released by Black Knight Financial Services (BKFS). The $22.6 billion in equity that was tapped via cash-out represents the largest sum of its kind since the second quarter of 2009, although it is nearly 80 percent below the equity draw peak that was reached in the third quarter of 2005.

The second quarter also markets the ninth consecutive quarterly increase in cash-out lending by both loan count and sum of equity draw. The average credit score of cash-out refinance borrowers during the quarter was 748, which is nearly 60 points higher than the overall 2005-2007 average. Nearly three-quarters of mortgage refinances this year went to borrower whose prior mortgages were originated in 2009 or after, while 40 percent of rate/term refinances involved the borrower reducing the term of their original loan.

“Today’s cash-out refinance borrowers continue to present a relatively low risk profile, historically speaking,” said Black Knight Data & Analytics Executive Vice President Ben Graboske. “The average credit score of 748 among second quarter 2016 cash-out refinance borrowers is 67 points higher than that of the low point recorded in third quarter 2006, and is in fact nearly 60 points higher than the overall average credit score from 2005 through 2007. In addition, post-cash-out loan-to-value ratios remain low. At 66 percent, it’s slightly higher than in first quarter 2016, but it’s the second lowest quarterly average recorded in over 11 years. This is nearly six percent below the 2005-2007 average and 10 percent below the highs recorded in late 2008.”