The share of cashout home refinancings edged down in the second quarter, but is likely to inch up in the remaining quarters of the year, according to a recent analysis.
In its second quarter Refinance Review, Freddie Mac said that 39% of company-owned refinanced loans included cashout -- where the new loan amount resulted at least 5% higher in amount than the original mortgage. The figure slipped from the first quarter's revised share of 42%, but is up from 33% a year ago.
"The very low interest rates that we saw in March, when 30-year fixed-rate mortgage rates averaged 5.4 percent, caused an increase in overall refinancing activity for the loans that closed in the second quarter," Freddie's deputy chief economist Amy Cutts said in a written statement. "When we see regular rate-and-term refinancings increase, the share of cashout refis drops."
The secondary lender said that the refinance share of mortgage applications, which was at 40% in the second quarter, will be reduced to between 30% and 35% in the remaining half of the year as the 30-year is expected to average between 6% and 6.5%.
"Cashout refis will make up a larger share of those third and fourth quarter refinancings because most homeowners have already refinanced into very low rate mortgages over the past year," Cutts said.
While the cashout refi share is expected to increase in the second half of the year, the dollar value of equity extraction will decrease, according to the report.
Total equity cashed out in the second quarter was reportedly $20 billion, down slightly from $23 billion in the previous quarter. Freddie expects the total for the year at $71 billion -- way below the previous estimate of $114 billion figured in the first quarter when rates were lower, and the forecasts for total mortgage originations and the refinance share were much higher, Cutts said.
In July, Freddie forecast $2.3 trillion U.S. mortgage originations for 2004, compared to its projection of $2.8 trillion in April after the 30-year hit a low for the year in March.
Refinanced properties appreciated 6% in value by the time the refinance loan was made -- unchanged from the first quarter and above the 3% in the second quarter 2003, according to the review.
For loans refinanced during the second quarter, the median age of the original loan was 1.8 years, which is nearly two months shorter than in the prior quarter, the report said.
Freddie said the estimates came from a sample of properties on which it has funded at least two successive loans. The analysis does not track the use of funds made available from these refinances.