Cash-out refinancings lowest since Q1 '05-Freddie

By Al Yoon

NEW YORK, Nov 6 (Reuters) - The amount of home equity "cashed-out" in loan refinancings plunged to its lowest level since early 2005 as tighter lending requirements and the weak housing market hampered borrowers, Freddie Mac said in a report on Tuesday.

Homeowners extracted $60.1 billion in equity from their homes in the third quarter, down more than 26 percent from the second quarter, Freddie Mac said. The ability of borrowers to monetize home equity has been crimped since June as lenders pinched by the global credit crisis pulled back on loans to even the best borrowers, and as falling home prices hurt appraisals, it said.

The drop is the latest indication that the U.S. economy may be headed for a stall. Cash-out refinancing has been cited by economists as a major driver of economic growth in recent years as homeowners used the money withdrawn on easy terms for all types of spending. Quarterly cash-out refinancing peaked at $83.5 billion in the second quarter of 2006.

Freddie Mac expects the amount of cash taken out in the current quarter will drop to $41.4 billion, a level not seen since mid-2004.

"Borrowers we are likely to see refinance will be those with resetting adjustable-rate mortgages and those who have had their homes long enough that recent house price declines are not a serious threat to equity," Frank Nothaft, Freddie Mac's chief economist, said in a statement.

Homeowners that refinanced for a new loan and cash held their initial mortgage since 2003, and experienced house price appreciation of 26 percent, median data showed. Homeowners still have about $10 trillion of equity in their houses, Freddie Mac said, citing the Federal Reserve.

House prices in 20 large metropolitan areas began to fall in aggregate in August 2006, according to the Standard & Poor's/Case-Shiller Home Price Indices. Futures traders are betting total price declines will be deeper than 20 percent in regions including San Francisco, California, and Miami, Florida, through 2010. (Editing by Chizu Nomiyama)