Cash Out Refis hit Five year LOW

Only 42 percent of refinances carried out during the first quarter resulted in cash out*, according to the latest “Cash-Out Refinance Report” from Freddie Mac.

That’s the lowest amount since the first quarter of 2004, well below the 55 percent seen in the fourth quarter of 2008, and nowhere close to the near-90 percent levels seen between 2005 and 2007.

“In the past two quarters, about $32 billion in home equity was cashed out by homeowners when they refinanced their home mortgage.” “This is the least we’ve seen over two successive quarters in the past eight years.”

Of course, it’s not by choice, but rather the result of slumping home prices that have sucked equity dry in scores of households across the nation, coupled with more stringent underwriting guidelines that limit things like cash-out.

On a positive note, half of the borrowers who refinanced during the first quarter now enjoy interest rates about 1.25 percent below the old rates.

The report also noted that 58 percent of prime borrowers who refinanced a conventional, first mortgage either kept the same principal balance or reduced it, up from 45 percent a quarter earlier.

Borrowers also rolled second mortgages into first lien balances when they refinanced, likely spelling major relief for the holders of the high risk loans.

“In the fourth quarter, $4.7 billion in second-lien debt was consolidated, increasing to $7.0 billion in the first quarter of 2009.”

“Because second liens generally carry higher interest rates, the consolidation of $11.7 billion into a lower-cost first lien provides about $200 million in interest savings over the next year to these households.”

So this is all pretty much good news; borrowers are no longer able to rely on their homes as ATM machines, let’s just hope they can pay their bills another way.

* If a borrower chooses to take cash-out in addition to their existing loan balance, the new loan balance will consist of the current loan balance plus the desired cash-out amount. This type of refinance is referred to as a “cash-out refinance

”. There are two ways a borrower can execute a cash-out refinance. They can either open up a home equity line of credit, also known as a Heloc, behind their existing first mortgage, or refinance their existing mortgage into one or two loans