Freddie Mac: Cash-out refinance share through three quarters of 2008 lowest in four yearsMortgagePress.comFreddie Mac, home equity, refinance, Senior Loan Officers Survey, Frank Nothaft, Amy Crews Cutts
In the third quarter of 2008, 78 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 paid-off
mortgage balances, according to Freddie Mac's quarterly refinance
review. The third-quarter share is down from the 86 percent share
of third quarter 2007, but up from an upward-revised second quarter
share of 67 percent. Over the first three quarters of 2008, the
share of refinances with a cash-out component was 63 percent, the
lowest level since 2004.
"Higher mortgage rates during the third quarter reduced the
number of borrowers that refinanced solely to obtain a lower
interest rate or shorter term. Thus borrowers who did refinance in
the third quarter were more likely motivated by a desire to
cash-out some of their home equity or move from an ARM to a
fixed-rate loan. For most borrowers who refinanced in the third
quarter, the refinance loan carried a somewhat higher interest rate
than the paid-off loan," noted Frank Nothaft, Freddie Mac vice
president and chief economist. "Mortgage rates averaged 6.3 percent
for conventional, conforming 30-year fixed-rate mortgages, the
highest since the third quarter of 2007.
"The combination of declining home values and tighter
underwriting standards have reduced the amount of equity that can
be extracted by homeowners this year."
According to the latest Senior Loan Officers Survey conducted by
the Federal Reserve Board, 74 percent of banks tightened
underwriting standards on prime first-lien mortgages over the three
months prior to the July survey.
"Many homeowners who have owned their home for several years
still have substantial equity in their home. We found that, on
average, borrowers who refinanced were replacing a mortgage that
was 4.4 years old and over the time they had that mortgage their
home value was up by 17 percent," observed Nothaft.
The median age of loans outstanding that were refinanced--4.4
years--as the oldest in eight years.
"Nine percent of homeowners reduced their loan amount while
refinancing during the first three quarters of this year," said
Nothaft. "This is the largest cash-in share in three yearssince the
first three quarters of 2005.
"In the third quarter of 2008, homeowners who refinanced raised
their coupon rate by about three-tenths of a percentage point based
on the refinance report's median ratio of new-to-old interest
"During the third quarter about $30 billion in home equity was
cashed out through refinance of conventional loans made to prime
borrowers, down from $40 billion that was cashed out during the
second quarter of this year. In total, about $99 billion in home
equity was cashed out through the first three quarters of 2008.
This is one-half the amount that was extracted over the first nine
months of last year," said Amy Crews Cutts, Freddie Mac deputy
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
For more information, visit www.FreddieMac.com.