Homeowners Are Again Pocketing Cash as They Refinance Properties

Wall Street Journal ^ | 27 May 2017 | Christina Rexrode

[Lorianne]

Americans refinancing their mortgages are taking cash out in the process at levels not seen since the financial crisis. Nearly half of borrowers who refinanced their homes in the first quarter chose the cash-out option, according to data released this week by Freddie Mac.

That is the highest level since the fourth quarter of 2008. The cash-out level is still well below the almost 90% peak hit in the run-up to the housing meltdown. But it is up sharply from the post-crisis nadir of 12% in the second quarter of 2012. In a cash-out refi, a borrower refinances an existing mortgage with a new one, typically at a lower borrowing cost, that has a higher principal balance than the existing one. This allows the homeowner to pay off the old mortgage and still have cash left over for other uses.

The growing popularity of cash-out refis has helped buoy refinance activity. After booming for several years, demand for refinance mortgages had begun to slow as the Federal Reserve began increasing short-term interest rates and longer-term bond yields moved higher. Mortgage rates remain low by historical standards, though. The average rate for a fixed, 30-year mortgage was 3.95%, Freddie Mac reported this week. Meanwhile, rising home prices have helped increase the equity homeowners have in their houses. This allows more people to refinance to capture the benefit of lower mortgage rates. And borrowers whose homes are rising in value are often more likely to be interested in refinancing for cash. For example, in Denver and Dallas, where home prices have jumped, more than half of refinancers opted for cash last year, according to Freddie Mac.

[Angels27]

Will people never learn?

[Pearls Before Swine]

That famous economic analyst Karl Marx said, “History repeats, first as tragedy, then as farce.” That’s particularly apt in the financial realm.

[lurk]

Mortgage-laden homeowners would be wise to refinance to a shorter-term note whenever possible, then pay extra.

We switched to a 15. Then we switched to a 10 and finished it off in 4.5 years.

Now the value of our paid-off home is going up about $20k per year due to rapid growth in the county. Hopefully next year we can sell to a rising code writer escaping from the Bay Area and downscale. Simplifying.

[Farmer Dean]

Hope they enjoy their trips to Vegas or where ever.Hope they also enjoy living in a tent if there’s another crash.

[kjam22]

Nope, they’ll never learn. Refinance, borrow more against the house.... then use the extra cash to go on a cruise or some other quality investment :)

[cicero2k]

They are talking about getting rid of Dodd-Frank legislation to get the economy moving.

Uh, that didn’t end well 2002-2007, did it?

Meanwhile, families here in Orange County, CA still have not recovered from 2003-2007 excesses.

We really need regulation to save people and institutions from harming themselves. Ultimately the sensible majority pay for the financial implosions.

Why should my neighbor take out $200,000; spend it extravagantly then default? I have to bail out the bank and never got to enjoy the $200,000 party.

[Gay State Conservative]

Liar loans,brought on by threats made to mortgage lenders by Attorney Corporal Reno in the 90's,are what brought us the crash of 2008.

I've had three mortgages in my life...the last of which was applied for in the early 80's and paid off in the early 90's.They all required 20% down,a confirmation of my credit score (which has always been excellent) and a written confirmation of my income from my employer.

Never missed a payment...never late with a payment...paid off all three early (a philosophy I learned from my Dad,a child of the Depression).

But I guess times have changed.

[Lorianne]

I couldn’t agree more.

But it seems like more bailouts on the way.

[ETCM]

"We really need regulation to save people and institutions from harming themselves."

Taking excessive cash out is obviously a risk, as proven when the last bubble burst, and those who cashed out walked away with that cash (and the cars/boats/RV's they bought with it). In a bubble, a refi of 95% value is far more risk than 50%. Why not just raise the interest rate on extra cash to match the risk? An extra 2% or 3% would discourage "cashing out".

[freddy005]

Will people never learn?

____________________________________________________________________

Answer: NO....that’s why they’re called “people” :(

[Redwood71]

This doesn’t always be legit when they say more equity to your home.

I’m in Washington State and we just sold a house to buy a new one free and clear. The adjusters up here have a wide open opportunity to do almost anything they like. When he came in to set the number, he walked into a home built in 1993, we bought in 1995. We added in the 20 or so years: storage shed 8X12, covered deck, new 25 year guaranteed flooring and carpet throughout, repainted every room at least twice, remodeled both bathrooms, added a fireplace hearth, new air conditioner, new heating system, an air flow through system with an ion filter in it, landscaped the entire back yard, painted the exterior twice, new double paned windows, new gutter system, all new appliances less than a year old........there’s more, but here’s the point. A comparable home down the road with the same footage but no sliding door to their smaller deck or any of the extras I mentioned, but they had better carpet in their living room even though ours was newer and almost as good, was assessed at exactly the same price as ours. Our realtor was so mad he called the guy and tried to get him to reconsider his error which he refused. His answer was, “No house in this tract can be better than that number.” And that is even with all the extras he identified on ours.

They are just crooked but it changes the worth of the housing market if it is done all over. And they are independently hired, seems to be the same ones, by the auditor’s department and they do whatever they want with no responsibility or recourse against them.

rwood

[DoughtyOne]

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[Mark was here]

They have learned to whine “Why should I loose my house, while the bankers don’t go to jail as I’m just a victim.”