by Calculated Risk on 6/12/2011 01:20:00 PM

When the Fed's Q1 Flow of Funds report was released on Thursday, I mentioned that some homeowners were paying down their loan amounts when they refinanced. I received some email questions about this, so I dug up the most recent Freddie Mac data.

Some borrowers are paying down their loans because they do not have sufficient equity in their homes to qualify for a loan (a downpayment in arrears). Others are probably paying down their loan amount to meet the conforming loan limits and obtain a better rate.

Here is some data from Freddie Mac as of Q1: 75 Percent of Refinancing Homeowners Maintain or Reduce Debt in First Quarter

• In the first quarter of 2011, 3-out-of-4 homeowners who refinanced their first-lien home mortgage either maintained about the same loan amount or lowered their principal balance by paying-in additional money at the closing table. Fifty-four percent maintained about the same loan amount, the highest share since 1985, when Freddie Mac began keeping records on refinancing patterns. In addition, 21 percent of refinancing homeowners reduced their principal balance.

• “Cash-out” borrowers, those that increased their loan balance by at least five percent, represented 25 percent of all refinance loans; the average cash-out share over the past 25 years was 62 percent.

• The net dollars of home equity converted to cash as part of a refinance, adjusted for inflation, was at the lowest level in 15 years (third quarter of 1996). ...

• The median interest rate reduction for a 30-year fixed-rate mortgage was about 1.2 percentage points, or a savings of about 20 percent in interest costs.

A couple of graphs ...

Click on graph for larger image.

The first graph shows the percent of loans with Cash-Out, no change and lower loan amounts. Obviously the percent of Cash-Out loans is very low.

Freddie definitions: "Higher Loan Amount" refers to loan amounts that were at least 5 percent greater than the amortized unpaid principal balance (UPB) of the original loan. "No Change In Loan Amount" refers to loans on which the principal balance was unchanged during refinance or loans that increased less than 5 percent of the original loan balance due to the inclusion of closing costs for the refinance. "Lower loan amount" refers to loan amounts that were less than the amortized UPB of the original loan.

The second graph shows the dollar amount of cash-out, and as a percent of the unpaid principal balance. The equity extraction boom in the 2004 through 2008 is obvious (too bad lending wasn't tightened up in 2005 or 2006).

Here are the Freddie spreadsheets with additional data (from Freddie): Quarterly Cash-Out Statistics and Quarterly Cash-Out Volume