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Refinance News | Refinance Share Statistics
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Affordable Refinance Program, H A R P 2.0 and other Making Home Affordable coverage.

Cashout Share Heads Higher

88% of 2nd quarter refis include cashout

August 2, 2006

By MortgageDaily.com staff

Refinances continued to slide in the second quarter -- pushing cashout activity to the highest level in 16 years.

The share of refinances that included cashout of at least 5 percent of the original mortgage was 88 percent in the second quarter -- the highest level since the same period in 1990, Freddie Mac said today. The share is up from 86 percent in the first quarter and 72% in the second quarter 2005.

Overall refinance activity, on the other hand, slipped 2 percent during the second quarter to comprise 42 percent of total originations, according to the announcement.

"Borrowers are reacting to both incentives to cash out home equity through refinance and incentives to change their mortgage as they hit an interest rate adjustment," said Frank Nothaft, Freddie chief economist, in the announcement. "Freddie Mac estimates that $500 billion in first lien mortgages will adjust this year and another $650 billion in second liens will see at least one rate change this year."

The 0.93 median ratio of old-to-new interest rate represented that the interest rate on half of the loans refinanced in the second quarter was almost 7 percent higher than that of the old loan, Freddie said. For the 20 quarters prior to 2006, the median refinance borrower was reducing first lien mortgage rates.

Because rates on home equity lines of credit have risen to 8.25 percent or higher, many borrowers are consolidating the high-cost debt into new first lien mortgages and turning to cashout refinance.

Thereby, "cash out activity should remain strong throughout the rest of the year as interest rates are expected to continue to gently climb," Freddie said.

Properties experienced a median house-price appreciation of 33 percent during the time since the original loan was made, up from 31 percent in the first quarter, according to the announcement.

The median age between when the original loan was made to the time of refinance reportedly was 3.2 years, about two months older than in the first quarter.

Freddie said the estimates come from a sample of properties on which it has funded at least two successive loans.

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