Refi Levels Drop in Fourth Quarter 2003, but Share of Refinancings Taking Cash Out Increases

MCLEAN, Va. – Nearly half – 45% – of loans owned by Freddie Mac that were refinanced in the fourth quarter 2003 resulted in new mortgages at least 5% higher in amount than the original mortgages. This compares, Freddie Mac’s quarterly refinance review shows, to an upwardly adjusted 34% of refinanced loans that had higher new loan amounts in the third quarter 2003. A year ago, when fixed-rate mortgage rates were still dropping, 40% of refinanced loans were for cash out, but the number of loans being refinanced was much higher. Freddie Mac Deputy Chief Economist Amy Crew Cutts said by the fourth quarter 2003, “since most of those who could refinance for lower rates have already done so, the later-year market became more attractive primarily to those who want or need to take equity out of their homes. Additionally, as mortgage rates began creeping upwards, the rate of refinancing began to drop off the record highs that we experienced earlier in the year” Cutts added that, “With interest rates still averaging well below 6 percent, homeowners are using cash out refinancing as an affordable way to finance purchases of durable goods, home improvements, and to pay down other forms of consumer debt.” According to Cutts, in 2003, homeowners put more than $100 billion worth of improvements and additions in to their homes, contributing to the growth in home values and pushing the total value of homeowner equity to a new high of $7.9 trillion by the third quarter of 2003. The review also showed that properties refinanced during the fourth quarter 2003 had a median house-price apprecition of 12% during the time since the original loan was made. That compares to an 11% appreciation for loans refinanced in fourth quarter 2002.