Cash-out refis fall in Q1: Dollar volume of equity cashed-out drops to $29 billionMortgagePress.comFreddie Mac, cash-out refis, Frank Nothaft, quarterly refinance review, Amy Crews Cutts, Flow of Funds Report
In the first quarter of 2008, 56 percent of Freddie Mac-owned
loans that were refinanced resulted in new mortgages with loan
amounts that were at least five percent higher than the original
mortgage balances, according to Freddie Mac's quarterly refinance
review. This was the smallest cash-out refinance percentage since
the second quarter of 2004. Further, the share for the fourth
quarter of 2007 was revised down to 77 percent.
"A tightening of mortgage underwriting standards throughout the
lending industry coupled with declining home values across much of
the nation has curtailed the amount of home equity cashed out by
homeowners," noted Frank Nothaft, Freddie Mac vice president and
chief economist."
"While equity conversion is down, regular refinance activity has
stepped up. Fixed mortgage rates reached four-year lows and
prompted large volumes of refinancing in the first quarter: More
than half of borrowers who refinanced into a fixed-rate mortgage
lowered their mortgage rate in the first three months of the year,"
observed Nothaft. "In contrast, six-out-of-seven refinances had a
cash-out component during 2006 and 2007, and borrowers were
generally increasing their mortgage rates to get a cash-out
refinance.
Freddie Mac expects 30-year fixed mortgage rates to average
between 5.8 and six percent for prime conventional conforming loans
over 2008.
In the first quarter of 2008, the median ratio of new-to-old
interest rate was 0.90. In other words, one-half of those borrowers
who paid off their original loan and took out a new one decreased
their first-mortgage coupon rate by ten percent, which translates
into a decrease in their coupon rate of just over five-eighths of a
percentage point at today's level of 30-year fixed mortgage
rates.
"During the first quarter about $29 billion in home equity was
cashed out through refinance of conventional loans made to prime
borrowers, off from a downwardly revised $36 billion cashed out in
the fourth quarter of 2007. This is about one-third of the amount
cashed out in the same quarter a year earlier," said Amy Crews
Cutts, Freddie Mac deputy chief economist. "While research has
shown a limited effect in the current quarter of equity conversion
into cash, the reduced equity extraction we saw in the first
quarter will likely be felt in the consumption and investment
decisions of households later on.
"The Fed's Flow of Funds report shows that national aggregate
homeowners' equity fell just a little over four percent from the
first quarter 2007 peak through the end of the year. As a share of
the aggregate value of real estate holdings of households,
aggregate equity has fallen below 50 percent for the first time in
the 56-year history of the Fed's measurement. While in total
dollars households still hold a hefty home-equity cushion of over
$9.6 trillion, their ability and willingness to tap into it is
diminished in the current environment."
The Cash-Out Refinance Report also revealed that properties
refinanced during the first quarter of 2008 had a median age of 2.2
years for the original loan, compared to 3.6 years in the fourth
quarter of 2007.
These estimates come from a sample of properties on which
Freddie Mac has funded at least two successive loans. Transactions
are further screened to verify that the latest loan is for
refinance rather than for home purchase. The Freddie Mac analysis
does not track the use of funds made available from these
refinances.
For more information, visit www.freddiemac.com.
