Mortgage Daily

Published On: January 28, 2010

More borrowers are paying down their mortgages when they refinance than are cashing out.

Refinances of Freddie Mac mortgages during the fourth-quarter 2009, where the principal balances increased at least 5 percent, accounted for a record-low 27 percent of all refinances, the secondary lender reported today. The figures are based on data going back to 1985 from properties where Freddie funded at least two successive loans.

The cashout share was 36 percent in the third quarter and 55 percent in the fourth-quarter 2008.

Based on a four-quarter average, last year’s cashout share was 35.75 percent, tumbling from 2008’s 64.00 percent.

On the other side of the spectrum, one-third of borrowers who refinanced during the fourth quarter actually lowered their principal balances. Freddie said it was the highest “cash-in” level on record.

Cash-ins were 18 percent in the prior quarter and 17 percent the prior year.

Freddie Chief Economist Frank Nothaft said that record low mortgage rates in December impacted the unusual activity.

“This transformation from a cash-out refi market to a cash-in refi market is consistent with other data we’ve seen on households reducing their overall debt burdens, particularly revolving credit like credit cards,” Nothaft explained.

Freddie Economist Amy Crews Cutts pointed to stiffer underwriting and declining home prices as the culprits for contracting cashouts.

An estimated $18.3 billion in home-equity was extracted through home-equity loans, second mortgages and home-equity lines-of-credit during the fourth quarter, Freddie reported. The figure fell from and estimated $24.8 billion three months earlier and $19.5 billion one year earlier.

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