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Record Rate of Mortgage Refinancers Cash-In

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More refinance mortgage borrowers paid down their principal in Q409 than in any other quarter since Freddie Mac (FRE) started tracking the statistic in 1985.  It’s the greatest share of “cash-in” refinance borrowers yet, the GSE says. During the last quarter, 33% of borrowers paid down their original principal by $1,000 or more during the process of refinancing their mortgage.  In Q493, by way of comparison, the statistic was 23%. Freddie Mac deputy chief economist Amy Crews Cutts told HousingWire a primary impetus for borrowers to pay down their principals is to take advantage of lower rates on mortgage deals with a loan-to-value (LTV) ratio of 80%. Q409’s results compare to 18% of cash-in refinancings in Q309 and 17% in Q408. The surge in cash-in refinance borrowers comes after years of borrowers “cashing out” to profit from rising property values during the housing boom. The Federal Reserve’s mortgage-backed security (MBS) purchase program has dropped interest rates to historic levels, at one point averaging as low as 4.71% in December, according to Freddie Mac’s weekly rate survey. That’s encouraged more borrowers to refinance their mortgage to take advantage of the low rates. “This transformation from a cash-out refi market to a cash-in refi market is consistent with other data we’ve seen on households reducing their overall debt burdens, particularly revolving credit like credit cards,” Freddie Mac chief economist Frank Nothaft said in a press statement. “From September of 2008 to November of 2009, consumers cut $100bn dollars in revolving debt from their obligations, according to the Federal Reserve Board.” The rate of borrowers who increased their loan balance by 5% or more was at a record low 27% in Q409. The previous low for cash-out share of refinance borrowers was 33% during Q203. During the quarter, homeowners cashed out about $11bn in home equity by refinancing prime credit rating mortgages, the smallest quarterly amount in nearly nine years. For all of 2009, homeowners cashed out nearly $70bn in home equity, the lowest amount since 2000, when $26bn was cashed out. “The main causes of the decline in cash-out refinance are declining home prices in many areas of the country that have eliminated equity that could have been extracted and tighter underwriting standards for loan-to-value ratios,” Crews Cutts said in the press statement. “Among the refinanced loans in our database, the median appreciation of the collateral property was a negative 2% over the median life of the prior loan of 3.6 years.” Write to Austin Kilgore. The author held no relevant investments.

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