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
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.
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."