Home equity cash-outs fade as prices slide: Freddie Mac

NEW YORK (Reuters) - The share of homeowners who tapped home equity for extra spending money when refinancing fell in the first half of 2008 to the lowest level in several years, mortgage financier Freddie Mac (FRE.N) said on Thursday.

The dollar amount of money borrowed also sank in the first six months, to the lowest in four years.

"Declining home values across much of the nation have curtailed the amount of home equity available to be cashed out by homeowners," Frank Nothaft, chief economist at the second largest U.S. home funding company, said in a release.

Home prices through April fell about 18 percent from their July 2006 peak, according to the 20-city Standard & Poor's/Case-Shiller index.

In fact 9.0 percent of homeowners lowered their mortgage amount when refinancing during the first of this year, Freddie Mac noted.

"This is the largest 'cash-in' share since the summer of 2005," Nothaft said. "This may reflect more cautious underwriting by lenders, resulting in homeowners paying down their loan balance in order to receive more favorable loan rates and terms."

In the second quarter, about $38 billion in home equity was taken by homeowners when they refinanced conventional loans made to prime borrowers, Freddie Mac said. That was less than half of the $79 billion cashed out in the same period last year.

"In total, about $68 billion in home equity was cashed out over the first six months of 2008, the least since the first six months of 2004," Amy Crews Cutts, Freddie Mac's deputy chief economist, said in the release.

During the second quarter, Freddie Mac said 66 percent of the new loans it owns were at least 5.0 percent larger than the original size after being refinanced, up from 58 percent in the first quarter. The first six months combined marked the lowest cash-out share since the autumn and winter of 2004-2005, according to Freddie Mac.

Homeowners who refinanced in the second quarter cut their mortgage rate on average by half a percentage point.

"Homeowners who refinanced last quarter had kept their previous loan for nearly three and a quarter years -- about 10 months longer than loans refinanced in the first quarter," Nothaft said. "This means that many loans refinanced last quarter had the benefit of additional appreciation during 2005, and homeowners had built up more home equity."

(Reporting by Lynn Adler)