|The share of quarterly cashouts increased, but year-to-date equity extracted is down by half from last year.
Cashouts accounted for 78 percent of third-quarter refinances, Freddie Mac reported today. The share climbed from the second quarter's 67 percent but was down from 86 percent a year earlier.
Cashouts are defined as refinances where the principal balances on the new mortgages exceeded the principal balances on the paid-off mortgages by at least 5 percent. The findings were based on a sample of loans where two successive loans were guaranteed by Freddie.
The dollar volume of extracted cash was $30 billion during the most recent quarter, down from the second-quarter's $40 billion.
Overall refinances were primarily motivated by the need to pull out equity or a desire to move from an adjustable-rate mortgage to a fixed rate.
The McLean, Va.-based secondary lender said that during the first nine months of 2008, the share of cashouts -- 63 percent -- was the lowest since 2004. About $99 billion in home equity has been extracted year-to-date -- half the level during the same period in 2007.
In addition, Freddie's figures don't reflect the severe decline in private-label home-equity loan originations as the secondary market has dried up.
"The combination of declining home values and tighter underwriting standards have reduced the amount of equity that can be extracted by homeowners this year," Freddie's Chief Economist Frank Nothaft explained in the report.
At the same time, 9 percent of refinancing borrowers reduced their balances, "the largest cash-in share in three years," according to the report
The median age of refinanced loans was 4.4 years -- the highest in eight years. Refinances ended up increasing the interest rate by around 0.3 percent.
In its October 2008 Economic and Housing Market Outlook, Freddie projected the 2008 refinance share will be 47 percent.