The Surprises in a Mortgage Refinance Economy (FMCC)

July 28, 2010 by Jon C. Ogg

There is still free money out there if you can qualify for it… Freddie Mac (OTC: FMCC) has released its latest data on its second quarter cash-out refinancings, and the re-fi activity is up as mortgage rates hover near record lows.  The interesting part of this whole story is that some are still able to take money out.  Freddie noted that some 22% of homeowners who refinanced  lowered their principal balance by putting in more money at closing.   Apparently, some still have funds to put into their homes.

The report was a tie for the third-highest quarter since it began collecting that data 25 years ago.  That compares to a revised figure of 19% in the first quarter of 2010.

Cash-out borrowing, measured by an increase of 5% or higher on the loan balance, came in at 27% of all refinancings.  That seems counter-intuitive in the new normal in a world of less and less credit with lower home values.  Freddie also noted that the amount of refinancings were with cash-out like this was also the lowest over the last three quarters since it began tracking the data 25 years ago.

As noted, “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.”  That came to $8.3 billion in home equity that was cashed out in the second quarter, down from $8.4 billion in the first quarter.

The decline was noted as being due to lower home prices and tighter underwriting standards.  Like you even needed to be told that.  Freddie noted that median appreciation of the collateral property was a negative, with a 5% drop, over the median prior loan life of 4 years.  The average rate reduction from refinance activities was a drop of 0.90% with average first year savings of close to $1,300.00 on a $200,000.00 loan.

If you can qualify for a refinance today, it is probably as close to being free money as you can get for savings on your house payments.

JON C. OGG