Homeowners Tapping Equity In Cash-Out Refis, Highest Level Since '08

As we detailed on Tuesday, the mortgage refis have cratered to levels not seen since December '08 amid a spike in interest (and mortgage) rates. Simply put, the population of borrowers who both qualify for a refi and want one given the higher rates has collapsed.

Consequently, the remaining homeowners seeking to refinance are overwhelmingly "cashing out" also known as taking out a new mortgage that's bigger than the remaining balance on the existing one and using the extra money to do sensible things like home improvements maintain their lifestyle.

And why not: just look at all that sweet, sweet equity...

"When rates are low, the primary goal of refinancing is to reduce the monthly payment,” wrote researchers for the Urban Institute in a recent report. “But when rates are high, borrowers have no incentive to refinance for rate reasons. Those who still refinance tend to be driven more by their desire to cash out.”

To better quantify the drop-off in refis, Black Knight reports the recent spike in interest rates cut the population of borrowers with an interest rate incentive to refinance by nearly 40 percent in 40 days

  • Virtually all of the decline in potential refinance candidates was among 2009 and later vintages; Fewer than 100K traditional refinance candidates (720+ credit score, <80 percent loan-to-value (LTV) ratio) remain in 2012 and later vintages

“As people stay in their homes longer we see people reinvesting in their homes by using equity to update their homes and do repair work,” said Rick Sharga, executive VP for Carrington Mortgage Holdings and an industry veteran (via MarketWatch). "We’ve seen a huge expansion of the types of retirement options people have. One is aging in place and retrofitting your house."

In the last go-around, many homeowners “blew the money,” in Sharga’s words, on splashy purchases like vacations and boats. But lenders were complicit too, offering loans that were as much as 120% of the existing value of the home.

Do you believe that? While homeowners may not be taking Hummer limos to Vegas with their cashed-out home equity "winnings" like idiots of ten-years past, it should be noted that the U.S. savings rate is at crisis lows, credit card debt has gone "completely vertical," and 61% of Americans don't have enough in savings to cover a $1,000 emergency.

Here are some troubling charts revealing the true state of the US consumer:

But at least we're confident.

And while it is nobody's intention to have a negative outlook on things, every several days or so, we notice, and are compelled to point out that there are some very sick looking canaries in familiar coal mines. We would also be remiss if we didn't caution that home prices may even come down, as once upon a time "markets" moved in a thing called a cycle.

Comments

Sudden Debt bluecollartrader Sun, 04/01/2018 - 18:39 Permalink

they make up for fun TV when you see them scream that nobody warned them before it blew up in their face :)

 

They also forget to mention the number of retirees that are taking out money to fund their lifestyle.

And that money come from future passdown money.

 

The younger generation doesn't realize yet that they'll only get the debt when thier parents die.

In reply to by bluecollartrader

LawsofPhysics Sun, 04/01/2018 - 16:33 Permalink

LOL!!  Fuck em! 

Does debt matter or not?

Soon enough, if you don't perform real work, you won't eat motherfucker. In the meantime...

"Full Faith and Credit"

same as it ever was!

Ink Pusher Sun, 04/01/2018 - 16:35 Permalink

It's the ' NEW AND IMPROVED'  Version of the Big Short V2.0 Ultra Market Collapse.

Buy in NOW , don't miss your chance to lose your pension, house and nest egg all in a day or two instead of a whole week....

Featuring :

Faster hostile takeovers and mortgage repossessions 

Zero Accountability to financial institutions and banks

Guaranteed losses all across the board for John Q Public

Antifaschistische karenm Sun, 04/01/2018 - 17:45 Permalink

how else to they expect the us to finance our dollar-cost-averaging strategy on bitcoin purchases!!   duh. 

At least we can walk away from our house and leave the keys on the granite countertop...and due to the to the anonymity of the cryptos, we can use that as a downer on the next house.

problem solved..everything is beautiful

In reply to by karenm

HRH of Aquitaine 2.0 cornflakesdisease Sun, 04/01/2018 - 16:44 Permalink

Same here. I get those letters about consolidating all my debt. Consolidate what debt? I pay off everything each month and overpay on my mortgage and my auto loan.

But I am guessing my neighbor's next door have lots and lots of debt. Same for a friend that is on vacay in Hawaii, right now. How can they afford to go to Hawaii? They put it on their CC.

In reply to by cornflakesdisease

HRH of Aquitaine 2.0 Sun, 04/01/2018 - 16:41 Permalink

Oh yes, I stopped getting letters about doing a refi, now the letters I get are about getting equity out of my house with a home equity loan. NO FUCKING WAY. Been there, done that, never again.

HRH of Aquitaine 2.0 In.Sip.ient Sun, 04/01/2018 - 17:10 Permalink

Scary huh? My last little landscaping job took 8 hours, two men, and $1100 to complete. I paid cash. I asked the guy how much to do my two small decks. He said $500. The painter, last summer, gave me a quote of $1000. What am I doing to get those decks cleaned up and re-stained? I am going to do it myself. (They don't have railings and are small). I bought a pressure washer for $180 and will buy the stain and do it myself once the weather gets warm. Plus I can use the pressure washer on the sidewalks in the back and front and on the driveway and on my fences.

In reply to by In.Sip.ient

Md4 Sun, 04/01/2018 - 17:25 Permalink

"As people stay in their homes longer we see people reinvesting in their homes by using equity to update their homes and do repair work,

 

On borrowed money (what the hucksters call "equity")...on top of a now-larger mortgage and mortgage payment...

...on a shack now just that much older, that it needs the repairs (presumably ordinary repairs) paid for with the borrowed money (that "equity" again, which is nothing more than the expected "profit" from unearned shack value appreciation, itself stemming from the greater fool mania masquerading as a housing market, apparently expected to continue...endlessly).

I guess the lender still believes the shack racket is headed higher (or sure sells that view) to justify the bigger mortgage on the older shack.

 

Whaddevah. 

My views on the obscene shack racket are well established. No need to wail on futilely, as the next 2008 coronary is around the corner, and this time, fatal.

Just you shack racketeers remember one thing: 

NO bailouts this time.

You are on YOUR own...

buzzsaw99 Sun, 04/01/2018 - 17:40 Permalink

when notional prices rise on low sales volume in california everyone gets a heloc because they have so much "equity".  yeah, i've seen that movie before, it sucked.

everything1 Sun, 04/01/2018 - 17:49 Permalink

I'm just starting to see the cash out mailings.  The first one I received, it appears.. of course it makes sense, I could do quite a bit better cashing out than selling the place.  It's eery how much these cold callers know about your mortgage, must be public information.

the_river_fish Sun, 04/01/2018 - 18:10 Permalink

The UK had some scary numbers released on Thursday. 2008 again?

The Office for National Statistics (ONS) and the Bank of England (BoE) both released UK data on March 29 and the data doesn’t look good. Key highlights include:

The households’ saving ratio fell to an annual record low of 4.9% in 2017 (since comparable records began in 1963) as growth in households’ spending exceeded the growth of households’ income.

Consumer Lending Outstanding (seasonally adjusted) excluding student loans hit a new record high £209.45 billion, higher than even before the financial crisis.

Total Mortgage Outstanding (seasonally adjusted) hit a new record high of £1.38 trillion.

Households accumulated slightly more debt in the form of loans in 2017 than they did financial assets for the first time since records began in 1987.

https://thistimeitisdifferent.com/ons-boe-data-march-2018

 

ExPat2018 Sun, 04/01/2018 - 18:32 Permalink

Too bad that Americans no longer think of a house as their HOME.

I could make a ton of money on my HOME if I wanted to sell it but its my HOME.

Home is where the heart is.

Some people still have culture.

Roger Ramjet Sun, 04/01/2018 - 19:04 Permalink

I have only one request of the Federal Reserve - - when this thing falls apart (once again), please don't come on the financial news networks and try to tell us that "no one could have seen this coming".  Thank you.