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Outstanding mortgage debt plummets in three years

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Mortgage debt fell nearly $400 billion between the end of 2007 and 2010 as more Americans continued to pound away at their debt and turned to refinancing to reduce monthly mortgage payments, according to new analysis from Freddie Mac's Chief Economist Frank Nothaft. According to Federal Reserve statistics the drop is even larger. Data compiled by the Fed indicates a $700 billion dip, with the nation's total outstanding mortgage debt at $14.52 trillion at the end of 2007 and stood at roughly $13.83 trillion in the fourth quarter of 2010. Nothaft cited data from the Federal Reserve Board, which shows mortgage debt plummeting over the past four years as interest rates declined, prompting more home refinancings (see chart below). Nothaft said some of the debt reduction is a result of three out of four homeowners deciding to refinance first-lien mortgages in the first quarter. He said those homeowners "either maintained about the same loan amount or lowered their principal balance by paying-in additional money at the closing table." The typical borrower cut their interest rate by 1.2 percentage points through refinancing, Nothaft said in a blog post Monday. Meanwhile, about 25% of borrowers in refinancing took "cash-out" and increased their loan balance by at least 5%. In another study, Freddie Mac reported that in the first quarter, fixed-rate loans made up more than 95 percent of all  refinanced loans. Write to: Kerri Panchuk.

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