November 12 2010 (Shirley Allen)

Freddie Mac has released the results of its third quarter 2010 cash-out refinance report and the number of homeowners who took cash out when they refinanced is at a record low. 33 percent of the homeowners who refinanced their first lien home mortgage actually lowered their principle balance by paying in additional money at the time of closing.

This is the second highest “cash-in” share since Freddie Mac began keeping records of refinancing patterns in 1985. This was a huge jump from the second quarter of 2010 when the cash-in share was 23 percent.

The report also revealed that the number of cash-out borrowers represented 18 percent of all refinance loans which is the lowest cash-out share since the report began.

An estimated $7.4 billion in home equity was cashed out in the third quarter compared to $9.4 billion cashed out during the second quarter. Both amounts are far less than the $84 billion that was cashed out during the peak of the cash-out boom in the second quarter of 2006.

Freddie Mac explains that the main causes of the declines in cash-out refinancing is due to reduced home prices, tighter underwriting standards for loan-to-value- ratios, and borrowers’ desire to pay down debt.

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

Tags: freddie mac, refinancing, underwriting standards, cash-out, cash-in, homeowners, borrowers, principle balance