June 7th, 2017 2:39 PM by Ron Mastrodonato
WASHINGTON – June 6, 2017 – Homeowners may be reluctant to sell, but they still want a piece of their home equity now. They're refinancing the mortgage and cashing out at levels that haven't been seen since the financial crisis, Freddie Mac reports.
Nearly half of borrowers who refinanced their homes during first quarter 2017 did a cash-out option, the highest level since the fourth quarter of 2008, according to Freddie Mac.
Still, the number of borrowers doing a cash-out refi remains well below the nearly 90 percent peak reached prior to the housing crash. But it is up significantly from the post-crisis 12 percent in the second quarter of 2012.
Rising home prices have helped increase the number of homeowners who now have equity in their homes. As such, more owners are finding they can refinance to get a lower mortgage rate and also take out some cash for other uses. In hot markets like Denver and Dallas, in which home prices have surged by some of the highest amounts in the country, more than half of refinancers opted to refinance for cash last year, according to Freddie Mac.
While the number of cash-out refis grows, Len Kiefer, Freddie Mac's deputy chief economist, does not see this as playing out similarly to the run-up to the financial crisis when borrowers were using their homes like ATMs. Borrowers must follower stricter underwriting standards now when they refinance a mortgage or get a loan. Also, there is less money at stake than a decade ago, Kiefer notes.
According to Freddie Mac, cash-out refis in the first quarter accounted for about $14 billion in net home equity, versus more than $80 billion in each of three straight quarters in 2006. Furthermore, total home equity cashed out in 2016 was $61 billion compared to $321 billion in 2006.
"People have been using cash-out for years," says Freddie Mac deputy chief economist Len Kiefer. "From a personal-finance standpoint, it can make a lot of sense."
Source: "Homeowners Are Again Pocketing Cash as They Refinance Properties," The Wall Street Journal (May 27, 2017), Rexrode, Christina