Cash-Out Refinance Share in First Half of 2008 Lowest in Three Years
Volume of Equity Cashed-Out Was $38 Billion in 2nd Quarter: One-Half Year Ago Amount
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McLean, VA – In the second quarter of 2008, 66 percent of Freddie Mac-owned loans that were refinanced resulted in new mortgages with loan amounts that were at least 5 percent higher than the original mortgage balances, according to Freddie Mac's quarterly refinance review. The second-quarter share was up slightly from an upward-revised first quarter share of 58 percent. Taken together, the first six months of this year marked the lowest cash-out share since the autumn and winter of 2004-2005.
"Declining home values across much of the nation have curtailed the amount of home equity available to be cashed out by homeowners," noted Frank Nothaft, Freddie Mac vice president and chief economist.
"Homeowners benefited from the low level of mortgage rates that prevailed for much of the second quarter. On average, homeowners who refinanced during the second quarter lowered their coupon rate by about one-half of a percentage point," observed Nothaft. In the second quarter of 2008, the median ratio of new-to-old interest rate was 0.93. 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 about 7.5 percent.
"Nine percent of homeowners reduced their loan amount while refinancing during the first half of this year. This is the largest cash-in share since the summer of 2005. This may reflect more cautious underwriting by lenders, resulting in homeowners paying down their loan balance in order to receive more favorable loan rates and terms.
"Homeowners who refinanced last quarter had kept their previous loan for nearly three and a quarter years – about 10 months longer than loans refinanced in the first quarter. This means that many loans refinanced last quarter had the benefit of additional appreciation during 2005, and homeowners had built up more home equity," Nothaft commented.
"During the second quarter about $38 billion in home equity was cashed out through refinance of conventional loans made to prime borrowers, less than one-half the $79 billion cashed out during the same period in 2007. In total, about $68 billion in home equity was cashed out over the first six months of 2008, the least since the first six months of 2004," 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.
Quarterly Refinance Statistics
|Percentage of Refinances Resulting in:||Descriptive Statistics on Loan Terms and Property Valuation|
|Quarter||5% Higher Loan Amount1||Lower Loan Amount||Median Ratio of New to Old Rate2||Median Age of Refinanced Loan (years)||Median Appreciation of Refinanced Property|
1Higher loan amount refers to loan amounts that were at least 5 percent greater than the amortized unpaid principal balance (UPB) of the original loan. "Lower loan amount" refers to loan amounts that were less than the amortized UPB of the original loan.
2Ratio of new to old rate refers to the ratio of the interest rate of the new loan to the interest rate of the refinanced loan.
Although Freddie Mac attempts to provide reliable, useful information in this document, Freddie Mac does not guarantee that the information is accurate, current or suitable for any particular purpose. The information is therefore provided on an "as is" basis, with no warranties of any kind whatsoever. Opinions and estimates contained in this document are those of Freddie Mac currently and are subject to change without notice. Information from this document may be used with proper attribution. Alteration of this document is strictly prohibited. © 2008 by Freddie Mac.
Freddie Mac is a stockholder-owned corporation established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets. Freddie Mac raises capital on Wall Street and throughout the world's capital markets to finance mortgages for families across America. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than five million renters.