Cash-In Refis Grow; Lenders Taking Lumps?

It appears lenders may be willing to take a hit on loan modifications, according to data released late last week by Freddie Mac (FRE). The GSE reported the largest cash-in share — where the refinanced loan is less than the original loan it paid off — in three years, while cash-out refinancing continued to slump amid declining home values. Either that, or borrowers are increasingly willing to put extra cash into a deal that puts them into a more traditional, fixed-rate mortgage. “Nine percent of homeowners reduced their loan amount while refinancing during the first three quarters of this year,” said Freddie Mac chief economist Frank Nothaft. “This is the largest cash-in share in three years — since the first three quarters of 2005.” Borrowers refinancing existing loans during the quarter, whatever the reason, certainly weren’t doing it to get better rates, either. “In the third quarter of 2008, homeowners who refinanced raised their coupon rate by about three-tenths of a percentage point,” Nothaft said. That’s not to say cash-out refis are dead: Over the first three quarters of 2008, the share of refinances with a cash-out component was 63 percent, which is the lowest level since 2004, but still the majority of refinancing activity nonetheless. About $30 billion in home equity was cashed out during Q3 through refinancing of conventional loans to prime borrowers, compared to 40 percent earlier in the year, said Freddie Mac deputy chief economist Amy Crews Cutts. In total, about $99 billion in home equity was cashed out through the first three quarters of 2008. This is one-half the amount that was extracted over the first nine months of last year,” she said. “Higher mortgage rates during the third quarter reduced the number of borrowers that refinanced solely to obtain a lower interest rate or shorter term,” said Nothaft. “Thus borrowers who did refinance in the third quarter were more likely motivated by a desire to cash-out some of their home equity or move from an ARM to a fixed-rate loan.” The average age of a refinanced loan in the third quarter was 4.4. years, the oldest age on record for the survey. Write to Kelly Curran at

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