A report released today indicates the share of mortgage loans with cashout jumped to the highest level in nearly five years. But the report's author projects home equity extractions will plunge next year.
In its second quarter Refinance Review, Freddie Mac found that 74% percent of its owned refinance loans included a cashout component, where the new mortgage was at least 5% higher than the original mortgage. The latest figure is higher than the prior quarter's 64% -- which had been the highest since the fourth quarter 2000 -- and way above 43% a year earlier.
But as cashout activity grew, the share of refinances fell during the latest quarter to 42 percent from 45% in the previous three-month period, Freddie reported.
Total home equity accessed during the second quarter was reported at $59 billion, Freddie said, up 37% from the first quarter's revised total.
Freddie increased its outlook for home equity cashed-out through prime first-lien refinances to $162 billion for the full year, which it expects will plunge to $69 billion in 2006.
"Interest rates on 30-year, fixed-rate mortgages dipped lower in the second quarter," said Freddie chief economist Frank Nothaft in the announcement. "Mortgage borrowers took advantage of these low rates by cashing out some home equity before rates go up as they are expected to in coming quarters."
The average thirty-year fixed mortgage rate is expected to end the fourth quarter near 6%, according to Freddie, about 25 basis points higher than the second quarter.
Properties refinanced in the latest period experienced a median house-price appreciation of 23 percent during the time since the original loan was made, up 5% from loans refinanced in the first quarter and 16% higher than in the second quarter last year.
The median age of loans refinanced in the second quarter was 2.6 years, Freddie said, two months older than in the prior three-month period.
Freddie's report is based on properties on which the secondary lender has funded at least two successive loans.