Radian implements mortgage insurance capital plan
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 rate." "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 chief economist. 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.