85 Percent of US Refinancing Homeowners Maintain or Reduce Mortgage
Debt in Fourth Quarter, 26-Year High
Location: McLean
Author: Eileen
Fitzpatrick
Date: Monday, February 6, 2012
Freddie Mac (OTC: FMCC) released the results of its fourth quarter
refinance analysis showing homeowners who refinance continue to
strengthen their fiscal house. This release of the report also contains
annual statistics on refinances for the ten largest metropolitan areas
and four Census regions of the U.S.
News Facts
In the fourth quarter of 2011, 85 percent of homeowners who refinanced
their first-lien home mortgage either maintained about the same loan
amount or lowered their principal balance by paying-in additional money
at the closing table, a 26-year high. Of these borrowers, 37 percent
maintained about the same loan amount, and 49 percent of refinancing
homeowners reduced their principal balance; this latter percentage
reflecting "cash-in" borrowers was the highest in the 26-year history of
the analysis.
"Cash-out" borrowers, those that increased their loan balance by at
least five percent, represented 15 percent of all refinance loans, the
lowest percentage in the 26 years of analysis; the average cash-out
share during the 1985 to 2010 period was 46 percent.
The median interest rate reduction for a 30-year fixed-rate mortgage was
about 1.4 percentage points, or a savings of about 26 percent in
interest rate. Over the first year of the refinance loan life, the
median borrower will save about $2,700 in interest payments on a
$200,000 loan.
The net dollars of home equity converted to cash as part of a refinance,
adjusted for inflation, was at the lowest level in 16 years (since the
third quarter of 1995). In the fourth quarter, an estimated $5.5 billion
in net home equity was cashed out during the refinance of conventional
prime-credit home mortgages, down from $5.6 billion in the third quarter
and substantially less than during the peak cash-out refinance volume of
$83.7 billion during the second quarter of 2006.
Among the refinanced loans in Freddie Mac's analysis, the median value
change of the collateral property was a negative 4 percent over the
median prior loan life of almost four years. In comparison, the Freddie
Mac House Price Index shows about a 23 percent decline in its U.S.
series between September 2007 and September 2011. Thus, borrowers who
refinanced in the fourth quarter owned homes that had held their value
better than the average home, or may reflect value-enhancing
improvements that owners had made to their homes during the intervening
years.
Of the ten largest metropolitan areas, the share of "cash-out" borrowers
has fallen in all areas, with Detroit and Miami experiencing the largest
declines. The "cash-in" share was up sharply in the U.S. and in all ten
large metropolitan areas. Median house values on refinance loans have
declined in all ten areas, with the sharpest declines in Detroit and
Miami.
Quotes
Attributed to Frank Nothaft, Freddie Mac vice president and chief
economist:
"The typical borrower who refinanced reduced their interest rate by
about 1.4 percentage points. On a $200,000 loan, that translates into
saving $2,700 in interest during the next 12 months.
"Savvy homeowners are taking advantage of some of the lowest fixed-rates
in more than 60 years to lock in interest savings. Fixed-rate mortgage
rates hit new lows during December, with 30-year product averaging 3.96
percent and 15-year averaging 3.25 percent that month, according to our
Primary Mortgage Market Survey."
Cash-out Refinance Analyses Information
These estimates come from a sample of properties on which Freddie Mac
has funded two successive conventional, first-mortgage loans, and the
latest loan is for refinance rather than for purchase. The analysis does
not track the use of funds made available from these refinances. The
analysis also does not track loans paid off in entirety, with no new
loan placed.
Quarterly Cash-Out Statistics [XLS]
Quarterly Cash-Out Volume [XLS]
Annual Cash-Out Statistics by Census Regions and 10 Largest MSAs
[XLS]
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