46 Percent of Refinancing Homeowners Pay Down Debt in Fourth Quarter
McLean, VA – January 31, 2011 – (RealEstateRama) — Freddie Mac (OTC: FMCC) released the results of its fourth quarter 2010 cash-out refinance analysis.
News Facts
- In the fourth quarter of 2010, 46 percent of homeowners who refinanced their first-lien home mortgage lowered their principal balance by paying-in additional money at the closing table. This is the highest “cash-in” share since Freddie Mac began keeping records on refinancing patterns in 1985. The revised cash-in share in the third quarter was 35 percent.
- “Cash-out” borrowers, those that increased their loan balance by at least 5 percent, represented 16 percent of all refinance loans; this is the lowest cash-out share since the analysis began in 1985. The revised third quarter cash-in share was 18 percent. The average cash-out share over the past 25 years has been 62 percent.
- The low cash-out refinancing activity coupled with higher cash-in share brought the net dollars of home equity converted to cash to the lowest level in more than a decade. In the fourth quarter, an estimated $6.8 billion in net home equity was cashed out during the refinance of conventional prime-credit home mortgages, down from $8.2 billion in the third quarter. After adjusting for inflation, the cash-out volume was the lowest since the first quarter of 1997. Over 2010, about $32 billion was cashed out of home equity on net, compared with $318 billion during the peak year of 2006. The 2010 volume was the smallest inflation-adjusted annual amount since 1997.
- Refinancing has been harder in recent years for both regular rate and term refinancings (to lower payments) and cash-out refinancing due to tighter underwriting standards and declines in home values. Among the refinanced loans in Freddie Mac’s analysis, the median appreciation of the collateral property was a negative 3 percent over the median prior loan life of 4.1 years.
- The median interest rate reduction was about 1.25 percentage points, or a savings of 22 percent in interest costs. Over the first year of the refinance loan life, these borrowers will save over $1,850 in principal and interest payments on a $200,000 loan.
Related Links
- Primary Mortgage Market Survey
- Current and Previous Cash-Out Refi information
- Economic Outlooks
- Press Release Archives
- Federal Reserve Flow of Funds: Balance Sheet Tables [PDF]
- NBER U.S. Secondary Market Yields On Federal Housing Administration Mortgages 01/1949-12/1965
Quotes
Attributed to Frank Nothaft, Freddie Mac vice president and chief economist
- “Early in the fourth quarter mortgage rates on 30-year fixed-rate conforming loans were at very low levels, the likes of which haven’t been seen in more than 50 years . This encouraged borrowers who could do so to refinance, and many looked at their other investment options and chose to pay down a bit of their mortgage at the same time.
- “Consumers are generally shedding debt, and mortgages are just another way they’re doing it. Between 2007 and the third quarter of 2010, mortgage debt declined more than $400 billion, according to the Fed [PDF] . The estimated volume of net equity cashed out in our report do not account for the homeowners who have paid off their mortgages in their entirety.”
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.
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Quarterly Refinance Statistics |
Percentage of Refinances Resulting in: | Descriptive Statistics on Loan Terms and Property Valuation | ||||
| Quarter | 5% Higher Loan Amount1 | No Change in Loan Amount | Lower Loan Amount | Median Ratio of New to Old Rate2 | Median Age of Refinanced Loan (years) | Median Appreciation of Refinanced Property |
| 200201 | 61% | 29% | 10% | 0.86 | 3.4 | 18% |
| 200202 | 63% | 26% | 10% | 0.88 | 3.4 | 20% |
| 200203 | 44% | 37% | 19% | 0.84 | 2.9 | 13% |
| 200204 | 40% | 38% | 22% | 0.82 | 2.4 | 11% |
| 200301 | 41% | 46% | 13% | 0.81 | 1.9 | 7% |
| 200302 | 33% | 52% | 15% | 0.79 | 1.7 | 4% |
| 200303 | 34% | 49% | 17% | 0.78 | 1.7 | 5% |
| 200304 | 44% | 35% | 21% | 0.82 | 2.2 | 12% |
| 200401 | 42% | 44% | 14% | 0.82 | 2.0 | 6% |
| 200402 | 43% | 43% | 14% | 0.83 | 2.0 | 8% |
| 200403 | 60% | 25% | 15% | 0.88 | 2.5 | 17% |
| 200404 | 57% | 24% | 19% | 0.88 | 2.2 | 16% |
| 200501 | 64% | 26% | 10% | 0.89 | 2.4 | 18% |
| 200502 | 72% | 19% | 9% | 0.92 | 2.5 | 23% |
| 200503 | 73% | 17% | 10% | 0.93 | 2.6 | 24% |
| 200504 | 81% | 11% | 8% | 0.98 | 2.9 | 29% |
| 200601 | 86% | 9% | 5% | 1.02 | 3.0 | 31% |
| 200602 | 88% | 7% | 4% | 1.08 | 3.2 | 34% |
| 200603 | 88% | 7% | 5% | 1.10 | 3.3 | 33% |
| 200604 | 82% | 11% | 7% | 1.04 | 3.3 | 28% |
| 200701 | 83% | 13% | 5% | 1.02 | 3.4 | 25% |
| 200702 | 84% | 11% | 5% | 1.02 | 3.5 | 24% |
| 200703 | 86% | 9% | 5% | 1.09 | 3.9 | 26% |
| 200704 | 77% | 15% | 9% | 1.02 | 3.6 | 19% |
| 200801 | 58% | 33% | 9% | 0.90 | 2.4 | 8% |
| 200802 | 67% | 24% | 9% | 0.94 | 3.3 | 13% |
| 200803 | 76% | 15% | 9% | 1.04 | 4.4 | 16% |
| 200804 | 55% | 28% | 17% | 0.91 | 3.1 | 7% |
| 200901 | 43% | 44% | 13% | 0.81 | 3.1 | 3% |
| 200902 | 37% | 47% | 16% | 0.80 | 3.5 | 1% |
| 200903 | 36% | 46% | 18% | 0.83 | 3.5 | 0% |
| 200904 | 24% | 40% | 36% | 0.84 | 3.6 | -2% |
| 201001 | 28% | 54% | 19% | 0.84 | 4.0 | -4% |
| 201002 | 25% | 52% | 23% | 0.84 | 4.0 | -5% |
| 201003 | 18% | 47% | 35% | 0.81 | 3.8 | -2% |
| 201004 | 16% | 39% | 46% | 0.78 | 4.1 | -3% |
Notes:
1“Higher Loan Amount” refers to loan amounts that were at least 5 percent greater than the amortized unpaid principal balance (UPB) of the original loan. “No Change In Loan Amount” refers to loans on which the principal balance was unchanged during refinance or loans that increased less than 5 percent of the original loan balance due to the inclusion of closing costs for the refinance. “Lower loan amount” refers to loan amounts that were less than the amortized UPB of the original loan. These three columns may not sum to 100% due to rounding.
2Ratio of new to old rate refers to the ratio of the interest rate of the new loan to the interest rate of the refinanced loan. Refinanced loans with adjustable-rate products are excluded.
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Quarterly Cash-Out Volume For All Prime Conventional Loans |
Year | 1. Total Cash-Out Dollars as a Percentage of Aggregate Refinanced Originations UPB | 2. Total Home Equity Cashed Out ($ billions) | 3. Total Volume of 2nd Mortgages/HELOC Consolidation ($ billions) | 4. Total Combined Volume of Cash-out and 2nd Mortgages/HELOC Consolidation ($ billions) |
| 200101 | 7.8% | $12.5 | $10.1 | $22.6 |
| 200102 | 9.6% | $23.0 | $15.5 | $38.5 |
| 200103 | 10.0% | $20.7 | $12.7 | $33.4 |
| 200104 | 7.2% | $26.7 | $14.3 | $41.0 |
| 200201 | 9.5% | $28.7 | $18.7 | $47.4 |
| 200202 | 10.8% | $23.0 | $13.0 | $36.0 |
| 200203 | 6.7% | $25.5 | $12.3 | $37.9 |
| 200204 | 5.9% | $33.9 | $15.4 | $49.4 |
| 200301 | 6.6% | $35.2 | $22.6 | $57.8 |
| 200302 | 5.9% | $38.5 | $20.9 | $59.4 |
| 200303 | 6.6% | $43.3 | $22.0 | $65.3 |
| 200304 | 10.4% | $29.8 | $12.9 | $42.7 |
| 200401 | 8.7% | $26.1 | $10.1 | $36.2 |
| 200402 | 9.7% | $35.6 | $12.5 | $48.1 |
| 200403 | 16.7% | $38.1 | $9.3 | $47.4 |
| 200404 | 15.1% | $43.1 | $12.2 | $55.3 |
| 200501 | 17.4% | $48.1 | $9.2 | $57.3 |
| 200502 | 20.7% | $61.5 | $9.6 | $71.1 |
| 200503 | 20.6% | $74.0 | $11.2 | $85.2 |
| 200504 | 25.4% | $79.3 | $8.7 | $87.9 |
| 200601 | 28.7% | $74.5 | $6.1 | $80.6 |
| 200602 | 31.0% | $83.6 | $5.9 | $89.5 |
| 200603 | 30.5% | $80.7 | $6.8 | $87.5 |
| 200604 | 25.9% | $79.5 | $9.6 | $89.1 |
| 200701 | 25.7% | $73.9 | $7.8 | $81.7 |
| 200702 | 26.2% | $71.9 | $7.9 | $79.8 |
| 200703 | 27.8% | $51.6 | $5.9 | $57.5 |
| 200704 | 22.7% | $39.8 | $7.0 | $46.8 |
| 200801 | 14.6% | $33.1 | $8.0 | $41.1 |
| 200802 | 18.0% | $31.1 | $6.5 | $37.6 |
| 200803 | 23.1% | $18.3 | $3.3 | $21.6 |
| 200804 | 14.0% | $11.9 | $4.0 | $15.9 |
| 200901 | 8.5% | $22.6 | $9.2 | $31.8 |
| 200902 | 8.0% | $24.4 | $10.3 | $34.6 |
| 200903 | 8.4% | $15.1 | $6.6 | $21.7 |
| 200904 | 5.7% | $10.0 | $8.1 | $18.2 |
| 201001 (E) | 5.7% | $8.2 | $4.7 | $12.9 |
| 201002 (E) | 5.5% | $9.4 | $5.8 | $15.1 |
| 201003 (E) | 3.7% | $8.2 | $7.8 | $16.0 |
| 201004 (E) | 3.2% | $6.8 | $8.6 | $15.4 |
Column 1. Indicates the share of newly refinanced mortgage debt balances that are due to equity-extraction through a cash-out refinance. It is the ratio of the value in Column 2 divided by our estimate of the refi dollar volume of prime first-lien mortgage originations.
Column 2. Indicates the dollar volume of equity cashed-out through the refinancing of prime, first-lien conventional mortgages. It is calculated using Freddie Mac’s estimate of prime, conventional mortgage originations volume, the refi share of originations, and the values in Column 1 of this sheet. We do not estimate how much equity is taken out through the refinance of FHA or VA loans or through refinance loans originated in the subprime market.
Column 3. Indicates the total increase in the principal balances of refinanced first-lien mortgages due to the consolidation of existing second mortgages or home-equity lines of credit into the first lien, and loan origination costs that are rolled into the principal balances. It is calculated using Freddie Mac’s estimate of prime, conventional mortgage originations volume, the refi share of originations, and of the average increase in the principal balance from refinanced loans that were not due to new equity extraction.
Column 4. Indicates the total increase in the principal balances of refinanced first-lien mortgages, inclusive of cash-out amounts, the consolidation of existing second mortgages or Home-Equity lines of credit into the first lien, and loan origination costs that are rolled into the principal balances. It is calculated using Freddie Mac’s estimate of prime, conventional mortgage originations volume, the refi share of originations, and of the average increase in the principal balance from refinanced loans.
(E). Indicates the value is an estimate and is subject to revision. The primary sources of any revisions are adjustments to Freddie Mac’s estimate of total refinance mortgage originations in the prime, conventional mortgage market.
These data can be found at http://www.freddiemac.com/news/finance/refi_archives.htm. For more information, contact us at ">
Although Freddie Mac attempts to provide reliable, useful information in this document, Freddie Mac does not guarantee that the information is accurate, current or suitable for any particular purpose. The information is therefore provided on an “as is” basis, with no warranties of any kind whatsoever. Opinions and estimates contained in this document are those of Freddie Mac currently and are subject to change without notice. Information from this document may be used with proper attribution. Alteration of this document is strictly prohibited. © 2011 by Freddie Mac.
Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation’s residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than five million renters.
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