The percentage of borrowers taking cash out of their homes when refinancing this year is at a low not seen in four years, at least among loans owned by Freddie Mac, the mortgage financier said.

Some 78 percent of refinance loans in the third quarter were cash-outs, Freddie Mac said, compared to 86 percent a year ago. For the first nine months of the year, the share of loans involving a cash out was 63 percent — the lowest level since 2004.

The percentage of borrowers taking cash out of their homes when refinancing this year is at a low not seen in four years, at least among loans owned by Freddie Mac, the mortgage financier said.

Some 78 percent of refinance loans in the third quarter were cash-outs, Freddie Mac said, compared with 86 percent a year ago. For the first nine months of the year, the share of loans involving a cash-out was 63 percent — the lowest level since 2004.

Some $30 billion in home equity was cashed out through refinance of conventional loans made to prime borrowers, down from $40 billion in the previous quarter, said Amy Crews Cutts, Freddie Mac deputy chief economist.

During the first nine months of 2008, about $99 billion in home equity was cashed out — about half as much as the same period last year, Crews Cutts said.

If homeowners are having a harder time extracting the equity from their homes, that could prolong an economic recovery. A new study by economists at the USC Lusk Center for Real Estate and the UCLA Ziman Center for Real Estate estimates that a 10 percent decline in housing wealth can reduce consumer spending by $105 billion (see Inman News story).

Freddie Mac defines cash-outs as a refinancing in which the amount of the new mortgage is at least 5 percent greater than the paid-off mortgage.

Because mortgage rates are up, most borrowers who refinanced in the third quarter ended up in a loan that carried a somewhat higher interest rate than the paid-off loan, said Freddie Mac Chief Economist Frank Nothaft.

Borrowers who refinanced in the third quarter were probably motivated by a desire to cash-out some of their home equity or move from an adjustable-rate mortgage to a fixed-rate loan, rather than obtaining a lower interest rate or shorter term, Nothaft said.

On average, borrowers who refinanced were replacing a mortgage that was 4.4 years old, and their home’s value had increased by 17 percent, Nothaft said, indicating "many homeowners who have owned their home for several years still have substantial equity."

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