New data indicates that a large share of borrowers who are refinancing their mortgages are staying away from cashout. The report also indicates that borrowers are reducing their interest rates at a pace not seen in nearly three decades.
Based on previous estimates from Freddie Mac, U.S. refinances closed by all mortgage originators were $403 billion in the fourth quarter, off from the third quarter’ $418 billion but more than the $346 billion in total refinance production during the fourth-quarter 2011.
Refinance share was unchanged from the third quarter at 0.76 percent, but it was higher than 0.73 percent in the year-earlier period.
Freddie reported Monday that 84 percent of first-lien refinances in the fourth-quarter 2012 resulted in a new loan that was either about the same as the old loan amount or lower. The share wasn’t far from the same period during 2011, when a record 85 percent of refinancing borrowers didn’t increase their principal balances.
Cashout accounted for 2.9 percent of fourth-quarter refinances.
Cashout share was up from 2.8 percent in the third quarter. But the share was more narrow than 3.2 percent in the final quarter of 2011.
During the latest quarter, $17.6 billion was extracted in home equity, including $8.1 billion given directly to borrowers and $9.5 billion from second mortgages and home-equity lines of credit used to consolidate other debts.
Cashout refinances accounted for 10.3 percent of all rate-lock activity in the U.S. Mortgage Market Index report from Optimal Blue and Mortgage Daily for the week ended Feb. 1.
Freddie also reported that the median interest rate reduction was 33 percent, the “largest reduction in 27 years.”
Despite home-value declines, borrowers saw some big benefits from the Home Affordable Refinance Program.
“For loans refinanced during the fourth quarter through HARP, the median depreciation in property value was 29 percent, the prior loan had a median age of about 5.9 years (to be eligible for HARP, the prior loan had to be originated before June 1, 2009), and the HARP borrower with a 30-year fixed-rate refinance (no product change) had an average interest-rate reduction of 2.0 percentage points,” the report said.
