In the third quarter, 33% of Freddie Mac borrowers who refinanced their first-lien home mortgage lowered their principal balance by paying in additional money at the closing table, according to the results of Freddie Mac's third-quarter cash-out refinance analysis.
This is the second-highest cash-in share since Freddie Mac began keeping records on refinancing patterns in 1985. The revised cash-in share in the second quarter was 23%.
Cash-out borrowers – those who increased their loan balance by at least 5% – represented 18% of all refinance loans – the lowest cash-out share since Freddie Mac began its analysis.
‘When rates fall to new lows, we typically see more "rate and term' refinanciers, who are looking only to reduce their interest payments, and relatively fewer cash-out borrowers,’ says Frank Nothaft, Freddie Mac's vice president and chief economist. ‘But now we're also seeing a very large share of borrowers reduce their mortgage debt when they refinance. Consumer debt across the board is down since the start of the recession, with non-mortgage consumer debt falling more than five percent since 2008, according to the Fed.’
In the third quarter, an estimated $7.4 billion in net home equity was cashed out during the refinance of conventional prime-credit home mortgages – down from $9.4 billion in the second quarter and less than 10% of the peak cash-out volume of $84 billion in the second quarter of 2006.
The main causes of the decline in cash-out refinancing were reduced home prices, tighter underwriting standards for loan-to-value ratios, and borrowers' desire to pay down debt, Freddie Mac explains. Among the refinanced loans in Freddie Mac's analysis, the median appreciation of the collateral property was a negative 3%. The median interest rate reduction was about one percentage point, or at least 18%.
SOURCE: Freddie Mac