Monday, June 13, 2011

Refinancing Home Mortgages Pattern Has Changed



This graph (click to enlarge)from Calculated Risk illustrates the new dynamic in mortgage refinancing at Freddie Mac. Fewer mortgages are being refinanced with cash back and more mortgages are being refinanced with cash being added to reduce the principle. This is partially because applicants need to satisfy new guidelines in order to refinance at lower interest rates. Applicants whose homes are worth less than their existing mortgages are paying down the principle.

This is a form of deleveraging. Households are no longer able to refinance and take cash out in order to boost consumption. Furthermore, those who are increasing their equity in order to refinance will have less to spend on consumption.

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