Sunday, February 07, 2010

Harney: "Cash-in" Refis

by Bill McBride on 2/07/2010 08:37:00 AM

From Kenneth Harney in the LA Times: 'Cash-in' refis growing in popularity

In Freddie Mac's latest quarterly survey of refinancings, 33% of homeowners put cash into the deal to lower their mortgage balances, the highest percentage ever. By contrast, only 27% of refinancers took cash out -- the lowest percentage on record.

... there has been a steady rise since the fourth quarter of 2007, when cash-ins hit 9%, up from just 5% of all refis earlier that year.

By early 2009, they accounted for 13% of refinancings, then grew to 18% in the third quarter. After that, cash-ins jumped to 33% in the final three months of 2009.
Harney discusses two reasons for "cash-in" refis: 1) Paying down the mortgage can get the borrower a better loan and avoid PMI, and 2) with interest rates so low on money market funds and CDs, paying down the mortgage offers a higher return.

This "cash-in" has shown up in the Fed's Flow of Funds data.

Mortgage Equity Withdrawal Click on graph for larger image in new window.

This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method.

For Q3 2009, the Net Equity Extraction was minus $91 billion, or negative 3.3% of Disposable Personal Income (DPI). Q4 data will be released on March 11th.

This decline was partially because of debt cancellation per foreclosure sales, and some from modifications, like Wells Fargo's principal reduction program, and partially due to homeowners paying down their mortgages as opposed to borrowing more.

Maybe "mortgage burning parties" will make a comeback too.

Note: Mortgage burning link is to an audio of NPR story last year: Mortgage-Burning Parties Almost Extinct

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