The dollar volume of cashouts during the latest quarter fell by more than half from a year earlier.
Cashouts represented 81 percent of all refinances during the fourth quarter, according to Freddie Mac's latest quarterly refinance review. The share fell from a revised 86 percent in the third quarter.
Freddie considers a mortgage to be a cashout transaction if the amount of the refinance exceeds 5 percent of the balance of the loan being paid off. Data for the analysis was derived from properties where Freddie funded at least two successive loans, with the later one being a refinance transaction.
By dollar volume, fourth quarter cashouts were $37.8 billion, down from $58.3 billion the prior quarter, the report said. The volume was less than half the level a year earlier.
"Home-value declines coupled with tougher underwriting standards at many lenders contributed to a decline in the amount of home equity cashed-out as part of a conventional loan refinance during the fourth quarter," Freddie Chief Economist Frank Nothaft said in the report.
"This is real evidence of the upset in the mortgage credit markets as well as the impact of the decline in home values that occurred late in the year," Freddie Economist Amy Crews Cutts stated in the announcement. "The total effect on home equity withdrawal is deeper than we document with our Cash-Out Refinance Report because at the same time that lenders tightened standards on their prime first mortgages, which is what we have recorded, many of them withdrew from the home-equity lending market or greatly tightened their criteria for new home equity loans."
Cutts cited statistics from the Federal Reserve Board of Governors indicating total owner's equity in residential real estate fell to around $10.6 trillion in the third quarter from about $10.4 trillion in the first quarter of 2007.
Nothaft noted that refinance volume fell as jumbo mortgages, those exceeding $417,000, became more expensive relative to conforming loans. He said by December, jumbo loans were priced 100 basis points higher than conforming mortgages.
The report indicated that lower appreciation on Midwest properties over the past several years helped keep cashout activity in that region down to 76 percent of refinances last year. Cashouts in the Northeast accounted for 86 percent of refinances while they were 87 percent in the South and West.
Freddie said the median amount of time between the date the original loans were closed and the fourth quarter 2007 refinances was 3.8 years -- during which the median appreciation was 21 percent.
This year, Freddie expects cashouts to be limited to borrowers that have been in their properties longer.