Residential Real Estate Newsroom

Dollar Volume of Equity Cashed Out Totals 70.5 Billion

82 percent of Freddie Mac-owned loans that were refinanced resulted in new mortgages with loan amounts that were at least five percent higher than the original mortgage balances, according to Freddie Mac' quarterly refinance review. The revised share for the last fourth quarter was also 82 percent.

"Fixed-rate mortgages averaged 6.2 percent for 30-year product and 6.0 percent for 15-year loans during the first quarter, well below the current rates offered on home equity loans," said Frank Nothaft, Freddie Mac vice president and chief economist. "Home equity loans are generally indexed to a bank's prime rate, currently averaging 8.25 percent. This interest-rate difference provides a big incentive to borrowers to use cash-out refinance as an alternative to a home equity loans.

The refinance share of applications averaged 46 percent in the first quarter, unchanged from 46 percent in the fourth quarter, according to Freddie Mac's Primary Mortgage Market Survey.

Freddie Mac expects 30-year fixed mortgage rates to average between 6.3 and 6.5 percent and initial rates on 1-year Treasury-indexed ARMs to hover near 5.5 percent.

In the first quarter the median ratio of new-to-old interest rate was 1.02. In other words, one-half of those borrowers who paid off their original loan and took out a new one increased their mortgage coupon rate by 2 percent or more, or roughly three-eighths of a percentage point at today's level of fixed mortgage rates.

This quarter we saw $70.5 billion cashed out, down from a revised $77.0 billion cashed out in the fourth quarter. Freddie Mac deputy chief economist. "Cash-out refinance volume is expected to decline due to an expected 6 percent reduction in overall mortgage origination activity and a fall in the refinance share of originations to around 44 percent for the year.

"Most borrowers with prime adjustable-rate mortgages (ARMs) that were scheduled for an interest-rate adjustment have already refinanced these loans. Freddie Mac estimates that there were about $170 billion in prime ARMs outstanding with scheduled rate resets. Just over $30 billion of these loans remained active."

The Cash-Out Refinance Report also revealed that properties refinanced during the first quarter experienced a median house-price appreciation of 24 percent during the time since the original loan was made, down from a revised 27 percent in the fourth quarter. For loans refinanced in the first quarter the median age of the original loan was 3.3 years, unchanged from the median age of loans refinanced during the fourth quarter.

These estimates come from a sample of properties on which Freddie Mac has funded at least two successive loans. Transactions are further screened to verify that the latest loan is for refinance rather than for home purchase.The Freddie Mac analysis does not track the use of funds made available from these refinances.