CASH-OUT REFIS - Key Takeaways

Recent discussions have assumed that lower mortgage rates are contributing to a resurgence of cash-out refis. I don’t see it (yet). Conventional fixed 30-year mortgage rates (“CF30”) are now 125 basis points lower than their high of 7.76% in November 2023. This appears to be having a positive impact on new originations, but… primarily in the purchase money mortgage category. 

As illustrated above, FNMA loans that were under 3 months of age plummeted subsequent to 2021 to a low of $48.9B as of May 2023. Since then they have risen to $57.6B. Details are shown below:

                                                                                      May-23                     July-24                      

• Purchase Money                                                $41.7B                      $51.1B
• Rate/Term Refi                                                     $2.2B                       $2.2B
• Cash-Out Refi                                                      $5.0B                       $4.4B  
  TOTAL ORIGINATIONS                                   $48.9B                    $57.6B

Additionally, it is worthy of note that there has been a deterioration in the average credit metrics (except for FICO) of these new loans since the halcyon year of 2021:

The average coupon of all existing CF30s is currently 3.90% with 89% of loans under 6.00%. Given the big increases mortgagors have experienced in home equity, it may make more sense for them to tap this through HELOCs.