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

Courtesy of ZeroHedge. View original post here.

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.

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.”

  • Virtually all of the decline in potential refinance candidates was among 2009 and later vintages; Fewer than 100K traditional refinance candidates (720+ credit score,

“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.


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