Industry News

Cash-outs dominate shrinking home refinance market

But dollar amount of extracted equity expected to decline

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In a conference call with reporters Tuesday, Freddie Mac's chief economist Frank Nothaft offered some insight into when and why people refinance their mortgages. Nothaft defines periods where refinancing constitutes more than 50 percent of mortgage loans as "refi boom periods." Since 1990, he said, there have been three such refinancing booms: 1992-'93, '98 and 2001-04. With interest rates on the rise, Nothaft expects that by the fourth quarter of 2006, refinancing will constitute just 30 percent of the mortgage loan business. Although loans for home purchases are expected to remain stable, the shrinking market for refinancing means overall mortgage loan volume is expected to be down 12 percent this year. Not only are fewer families refinancing, but they are doing so for different reasons. Freddie Mac's surveys reveal that back in 2003, just 20 percent of families refinanced to cash out some of the equity in their homes. The rest were moving to lock in low interest rates or shorten ...