Borrowers who refinance their loans through Freddie Mac continue to eschew cash out refinancing, tending instead to reduce either the amount of their loan or leave it unchanged.  Freddie Mac released second quarter 2012 data on Wednesday, and 81 percent of homeowners who refinanced their first-lien home mortgage either kept the loan amount constant or lowered the principal balance by bringing cash to the closing table.

Of the 81 percent, 59 percent too new loans of approximately the same size and 23 percent reduced their principal balance, the highest percentage in that category in the 27 years Freddie Mac has kept track.  In the first quarter 79 percent of borrowers maintained or lowered their loan amounts.  Freddie Mac reports this data from a sample of properties on which it has funded two successive conventional first mortgage loans, the most recent for refinance rather than purchase. 

Borrowers converted an estimated $5 billion in net home equity to cash through refinancing.  Adjusted for consumer-price inflation, this is the lowest cash out amount since the second quarter of 1995.  By contrast, at the peak of cash-out refinancing in the second quarter of 2006 homeowners cashed out $84 billion.

Freddie Mac said that Americans were continuing to strengthen their fiscal house, but the austerity may be forced rather than a matter of prudence.  The properties refinanced had a median depreciation of the collateral property of 16 percent since the purchase or most recent refinance so many borrowers may have had no equity to withdraw.  The median age of the loan that was refinanced was 5.1 years, the oldest median in 13 years. 

There was a difference in the median change in property values and in loan age between loans refinanced through the Home Affording Refinance Program (HARP) and other Freddie Mac loans.  As might be expected, persons refinancing into HARP loans had suffered a much larger depreciation than others who refinanced during the quarter.  The median depreciation for HARP loans was 34 percent.  When HARP loans were taken out of the equation the median depreciation for other refinanced loans was only 2 percent.  Likewise the age of the loan was longer for HARP, 5.5 years than for others in the sample, four years.  In order to be eligible for a HARP refinance the existing loan had to have been closed before June 1, 2009.

The median interest rate reduction for a 30-year fixed-rate mortgage was about 1.5 percentage points, or a savings of about 28 percent in the interest rate, the largest percent reduction recorded in the 27 years of analysis.

Frank Nothaft, Freddie Mac vice president and chief economist said, "The enhancements to HARP announced in October, such as removing the maximum loan-to-value limit, resulted in additional refinance volume during the second quarter. HARP loans were about one-third of Freddie Mac's refinance fundings during the second quarter, the highest share since HARP's inception.

"The typical borrower who refinanced reduced their interest rate by about 1.5 percentage points Notaft said.  "On a $200,000 loan, that translates into saving about $2,900 in interest during the next 12 months."