Cash-In Refinancings Rise in Second Quarter
Tied for Third Highest Cash-In Share on Record
July 28,
2010
Contact:
corprel@freddiemac.com
or (703) 903-3933
McLean, VA – Freddie Mac (OTC: FMCC) released the results of its second quarter cash-out refinance analysis.
News Facts
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In the second quarter of 2010, 22 percent of homeowners who refinanced their first-lien home mortgage lowered their principal balance by paying-in additional money at the closing table. This ties the record for the third highest "cash-in" share since Freddie Mac began keeping records on refinancing patterns in 1985. The revised cash-in share in the first quarter was 19 percent.
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"Cash-out" borrowers, those that increased their loan balance by at least 5 percent, represented 27 percent of all refinance loans; the cash-out shares over the last three quarters were the lowest since the analysis began in 1985. The higher cash-in share in combination with low cash-out refinancing activity brought the net dollars of home equity converted to cash to the lowest level in 10 years. In the second quarter, $8.3 billion in home equity was cashed out during the refinance of conventional prime-credit home mortgages vs. $8.4 billion in the first quarter.
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The main causes of the decline in cash-out refinancing were reduced home prices and tighter underwriting standards for loan-to-value ratios. Among the refinanced loans in Freddie Mac's analysis, the median appreciation of the collateral property was a negative 5 percent over the median prior loan life of 4.0 years.
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The median interest rate reduction was about nine-tenths of a percentage point, or at least 16 percent. Over the first year of the refinance loan life, these borrowers will save over $1,300 in principal and interest payments on a $200,000 loan.
Quotes
Attributed to Frank Nothaft, Freddie Mac vice president and chief economist
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"Interest rates on fixed-rate mortgages are at 50-year lows, making refinancing attractive if borrowers qualify, and similarly rates on savings instruments like CDs are also very low, which makes the choice of paying down mortgage principal very attractive to borrowers with extra cash reserves.
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"If you pay down your mortgage balance you save the interest you would pay on the loan, about 4.6 percent at today's rates, over the life of the loan versus earning a percentage point or less in CDs and money markets and without the riskiness of stock market investments, which have not performed well in the past couple of years either."
Cash-out Refinance Analyses Information
- These estimates come from a sample of properties on which Freddie Mac has funded two successive loans, and the latest loan is for refinance rather than for purchase. The analysis does not track the use of funds made available from these refinances.
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Quarterly Refinance Statistics
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| Percentage of Refinances Resulting in: | Descriptive Statistics on Loan Terms and Property Valuation | |||||
| Quarter | 5% Higher Loan Amount1 | No Change in Loan Amount | Lower Loan Amount | Median Ratio of New to Old Rate2 | Median Age of Refinanced Loan (years) | Median Appreciation of Refinanced Property |
| 200103 | 61% | 28% | 10% | 0.88 | 2.7 | 18% |
| 200104 | 47% | 34% | 19% | 0.84 | 2.8 | 14% |
| 200201 | 61% | 29% | 10% | 0.86 | 3.4 | 18% |
| 200202 | 63% | 26% | 10% | 0.88 | 3.4 | 20% |
| 200203 | 44% | 37% | 19% | 0.84 | 2.9 | 13% |
| 200204 | 40% | 38% | 22% | 0.82 | 2.4 | 11% |
| 200301 | 41% | 46% | 13% | 0.81 | 1.9 | 7% |
| 200302 | 33% | 52% | 15% | 0.79 | 1.7 | 4% |
| 200303 | 34% | 49% | 17% | 0.78 | 1.7 | 5% |
| 200304 | 44% | 35% | 21% | 0.82 | 2.2 | 12% |
| 200401 | 42% | 44% | 14% | 0.82 | 2.0 | 6% |
| 200402 | 43% | 43% | 14% | 0.83 | 2.0 | 8% |
| 200403 | 60% | 25% | 15% | 0.88 | 2.5 | 17% |
| 200404 | 57% | 24% | 19% | 0.88 | 2.2 | 16% |
| 200501 | 64% | 26% | 10% | 0.89 | 2.4 | 18% |
| 200502 | 72% | 19% | 9% | 0.92 | 2.5 | 23% |
| 200503 | 73% | 17% | 10% | 0.93 | 2.6 | 24% |
| 200504 | 81% | 11% | 8% | 0.98 | 2.9 | 29% |
| 200601 | 86% | 9% | 5% | 1.02 | 3.0 | 31% |
| 200602 | 88% | 7% | 4% | 1.08 | 3.2 | 34% |
| 200603 | 88% | 7% | 5% | 1.10 | 3.3 | 33% |
| 200604 | 82% | 11% | 7% | 1.04 | 3.3 | 28% |
| 200701 | 83% | 13% | 5% | 1.02 | 3.4 | 25% |
| 200702 | 84% | 11% | 5% | 1.02 | 3.5 | 24% |
| 200703 | 86% | 9% | 5% | 1.09 | 3.9 | 26% |
| 200704 | 77% | 15% | 9% | 1.02 | 3.6 | 19% |
| 200801 | 58% | 33% | 9% | 0.90 | 2.4 | 8% |
| 200802 | 67% | 24% | 9% | 0.94 | 3.3 | 13% |
| 200803 | 76% | 15% | 9% | 1.04 | 4.4 | 16% |
| 200804 | 55% | 28% | 17% | 0.92 | 3.1 | 7% |
| 200901 | 43% | 44% | 13% | 0.81 | 3.1 | 3% |
| 200902 | 37% | 47% | 16% | 0.80 | 3.5 | 1% |
| 200903 | 36% | 46% | 18% | 0.83 | 3.5 | 0% |
| 200904 | 24% | 40% | 36% | 0.84 | 3.6 | -2% |
| 201001 | 28% | 54% | 19% | 0.84 | 4.0 | -4% |
| 201002 | 27% | 52% | 22% | 0.84 | 4.0 | -5% |
Notes:
1"Higher Loan Amount" refers to loan amounts that were at least 5 percent greater than the amortized unpaid principal balance (UPB) of the original loan. "No Change In Loan Amount" refers to loans on which the principal balance was unchanged during refinance or loans that increased less than 5 percent of the original loan balance due to the inclusion of closing costs for the refinance. "Lower loan amount" refers to loan amounts that were less than the amortized UPB of the original loan. These three columns may not sum to 100% due to rounding.
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. Refinanced loans with adjustable-rate products are excluded.
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Quarterly Cash-Out Volume For All Prime Conventional Loans
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| Year | 1. Total Cash-Out Dollars as a Percentage of Aggregate Refinanced Originations UPB | 2. Total Home Equity Cashed Out ($ billions) | 3. Total Volume of 2nd Mortgages/HELOC Consolidation ($ billions) | 4. Total Combined Volume of Cash-out and 2nd Mortgages/HELOC Consolidation ($ billions) |
| 200003 | 12.5% | $6.6 | $8.0 | $14.7 |
| 200004 | 11.0% | $7.7 | $8.4 | $16.1 |
| 200101 | 7.8% | $12.5 | $10.1 | $22.6 |
| 200102 | 9.6% | $23.0 | $15.5 | $38.5 |
| 200103 | 10.0% | $20.7 | $12.7 | $33.4 |
| 200104 | 7.2% | $26.7 | $14.3 | $41.0 |
| 200201 | 9.5% | $28.7 | $18.7 | $47.4 |
| 200202 | 10.8% | $23.0 | $13.0 | $36.0 |
| 200203 | 6.7% | $25.5 | $12.3 | $37.9 |
| 200204 | 5.9% | $33.9 | $15.4 | $49.4 |
| 200301 | 6.6% | $35.2 | $22.6 | $57.8 |
| 200302 | 5.9% | $38.5 | $20.9 | $59.4 |
| 200303 | 6.6% | $43.3 | $22.0 | $65.3 |
| 200304 | 10.4% | $29.8 | $12.9 | $42.7 |
| 200401 | 8.7% | $26.1 | $10.1 | $36.2 |
| 200402 | 9.7% | $35.6 | $12.5 | $48.1 |
| 200403 | 16.7% | $38.1 | $9.3 | $47.4 |
| 200404 | 15.1% | $43.1 | $12.2 | $55.3 |
| 200501 | 17.4% | $48.1 | $9.2 | $57.3 |
| 200502 | 20.7% | $61.5 | $9.6 | $71.1 |
| 200503 | 20.6% | $74.0 | $11.2 | $85.2 |
| 200504 | 25.4% | $79.2 | $8.7 | $87.9 |
| 200601 | 28.7% | $74.5 | $6.1 | $80.6 |
| 200602 | 31.0% | $83.6 | $5.9 | $89.5 |
| 200603 | 30.5% | $80.7 | $6.8 | $87.5 |
| 200604 | 25.9% | $79.5 | $9.6 | $89.1 |
| 200701 | 25.7% | $73.8 | $7.8 | $81.7 |
| 200702 | 26.2% | $71.9 | $7.9 | $79.8 |
| 200703 | 27.8% | $51.6 | $5.9 | $57.5 |
| 200704 | 22.7% | $39.8 | $7.0 | $46.8 |
| 200801 | 14.6% | $33.1 | $8.0 | $41.1 |
| 200802 | 18.0% | $31.1 | $6.5 | $37.6 |
| 200803 | 23.1% | $18.3 | $3.3 | $21.6 |
| 200804 | 14.0% | $11.9 | $4.0 | $15.9 |
| 200901 (E) | 8.5% | $19.6 | $8.0 | $27.7 |
| 200902 (E) | 8.0% | $21.8 | $9.2 | $31.0 |
| 200903 (E) | 8.3% | $17.3 | $7.5 | $24.9 |
| 200904 (E) | 5.7% | $12.1 | $9.8 | $21.9 |
| 201001 (E) | 5.7% | $8.4 | $4.9 | $13.3 |
| 201002 (E) | 5.8% | $8.3 | $4.8 | $13.1 |
Column 1. Indicates the share of newly refinanced mortgage debt balances that are due to equity-extraction through a cash-out refinance. It is the ratio of the value in Column 2 divided by our estimate of the refi dollar volume of prime first-lien mortgage originations.
Column 2. Indicates the dollar volume of equity cashed-out through the refinancing of prime, first-lien conventional mortgages. It is calculated using Freddie Mac's estimate of prime, conventional mortgage originations volume, the refi share of originations, and the values in Column 1 of this sheet. We do not estimate how much equity is taken out through the refinance of FHA or VA loans or through refinance loans originated in the subprime market.
Column 3. Indicates the total increase in the principal balances of refinanced first-lien mortgages due to the consolidation of existing second mortgages or home-equity lines of credit into the first lien, and loan origination costs that are rolled into the principal balances. It is calculated using Freddie Mac's estimate of prime, conventional mortgage originations volume, the refi share of originations, and of the average increase in the principal balance from refinanced loans that were not due to new equity extraction.
Column 4. Indicates the total increase in the principal balances of refinanced first-lien mortgages, inclusive of cash-out amounts, the consolidation of existing second mortgages or Home-Equity lines of credit into the first lien, and loan origination costs that are rolled into the principal balances. It is calculated using Freddie Mac's estimate of prime, conventional mortgage originations volume, the refi share of originations, and of the average increase in the principal balance from refinanced loans.
(E). Indicates the value is an estimate and is subject to revision. The primary sources of any revisions are adjustments to Freddie Mac's estimate of total refinance mortgage originations in the prime, conventional mortgage market.
These data can be found at http://www.freddiemac.com/news/finance/refi_archives.htm. For more information, contact us at chief_economist@freddiemac.com
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. © 2010 by Freddie Mac.
Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than five million renters.
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