Cash-out refinance activity hit near three-year highs in the second quarter, as homeowners tapped record levels of home equity, according to ICE Mortgage Technology’s Mortgage Monitor Report.
At the same time, equity may be cresting, as evidenced by a quarter of markets seeing a 5% drop in tappable equity.
Also notable, many homeowners eager to lower their monthly payments would be “in the money” for rate-and-term refi if rates were to drop marginally (3 million at 6.375% and 4.8 million at 6.125%), the report shows.
Most of those homeowners purchased in the last 2.5 years.
The report also shows that homeowners had gained record high levels of equity in the second quarter: Total home equity reached $17.8 trillion, with $11.6 trillion in tappable equity and 48 million mortgage holders able to access an average of $213,000.
Cash-out refis accounted for 59% of all refinance activity, with borrowers drawing $94,000 in equity and increasing payments by $590 per month on average.
Cash-out retention hit its lowest level in more than four years, the report shows – a significant challenge given that cash-outs drove nearly 60% of all second quarter refi activity.
FHA and VA loans – which have driven the largest share of rate-and-term refinance activity – drove decline in rate-and-term retention.
FHA delinquencies continue to trend up: FHA loans now represent more than half of all seriously past due (90+ day) mortgages despite accounting for only ~15% of active mortgages.
“Homeowners are actively drawing on record equity with cash-out refinance loans, signaling increased demand despite elevated rates,” says Andy Walden, head of mortgage and housing market research at ICE, in a statement. “Meanwhile, a substantial cohort of people who purchased homes over the last three years are watching on the sidelines for rates to drop so they can refinance into a lower monthly payment.”
Photo: Patrick Pahlke