Consumer deleveraging continues in the housing market, and not all of that is via foreclosure or default. Freddie Mac reports 33% Of Homeowners Who Refinanced In 3Q Cut Principal

One-third of homeowners who refinanced their mortgage terms in the third quarter lowered their principal balance through so-called cash-in at closing, according to Freddie Mac (FMCC).

It was the second-highest total since Freddie began keeping records of refinance patterns in 1985. The revised cash-in rate in the second quarter was 23%.

Rates on 30-year fixed mortgages dropped during the third quarter to levels not seen since the early 1950s, according to Frank Nothaft, Freddie’s chief economist.

The median interest-rate reduction was about one percentage point, or at least 18%. During the first year of the refinance loan life, those borrowers will save over $1,400 in principal and interest payments on a $200,000 loan.

Cash-out borrowers, or those that increased their loan balance by at least 5%, represented 18% of all refinanced loans — the lowest since Freddie began tracking. Freddie said $7.4 billion in net home equity was cashed out during the quarter, down from $9.4 billion in the second quarter and less than 10% of the peak volume that was seen in the second quarter of 2006.

Cash-In Trend

Michael Becker, a mortgage banker, sent me this note just a bit ago …

I can confirm that “cash-in” refinancing is a new trend. I have many borrowers who are bringing money to the closing table in order to be able qualify for a refinance at today’s low rates.

Isn’t this another example of how the US consumer is deleveraging?


A few years back cash-out refinancing was used to buy cars, boats, granite countertops, and take vacations. This new trend shows a market now turned 180 degrees from consumption and risk to frugality and risk avoidance.

This is a good thing, but foolish central bankers do not see it that way.

Mike “Mish” Shedlock
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