October 31 2010 (Jeff Alan)

Freddie Mac has reported the share of mortgage loans that are being refinanced in which cash is being pulled out has hit a new low in the third quarter. Not surprising considering how far home prices have fallen in the last three years.

The mortgage financier reported that just 18 percent of refinanced loans were considered cash-out refinances. A “cash-out” refinance loan is defined as a mortgage in which the loan balance increases by at least five percent.

That’s down from 25 percent a quarter earlier and 36 percent in the third quarter of 2009.

The decline in cash-out refinancing was the result of reduced home prices, tighter underwriting standards for loan-to-value ratios, a lack of home equity, and borrowers’ desire to actually pay down their debt.

“Among the refinanced loans in Freddie Mac’s analysis, the median appreciation of the collateral property was a negative 3 percent over the median prior loan life of 3.8 years,” the mortgage company said in a release.

Meanwhile, refinance volume in which no cash was pulled out increased to 33 percent from 23 percent a quarter earlier and 18 percent a year ago. That’s the highest it has been since hitting a record high 36 percent in the fourth quarter of 2009.
Freddie Mac also reported that the median mortgage rate reduction was about one percentage point, or at least an 18 percent reduction in the mortgage payment.

Consequently, borrowers will save over $1,400 in principal and interest payments on a $200,000 loan over the first year of the new refinance loan,