Freddie Mac: More cash-out refis this year

Home improvement spending grows
Inman News
Cash-out refinancings that resulted in higher mortgages jumped in the first quarter of 2005, mortgage giant Freddie Mac said today.

Freddie Mac said 64 percent of its loans that were refinanced in 2005's first quarter resulted in new mortgages with loan amounts at least 5 percent higher than the original mortgage balances.

In comparison, in the fourth quarter of 2005, 56 percent of refinanced loans had higher new loan amounts. That quarter was the highest since the fourth quarter of 2000.

"The first quarter had record home sales and single-family housing starts and a lot of refinancing activity," Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement.

The share of borrowers who decided to cash out some home equity as part of their refinancing increased as well, Nothaft said. This helped prop up consumer spending on home improvements, even though total consumer expenditures grew more slowly, according to Nothaft.

Freddie Mac expects the U.S. Gross Domestic Product to grow at a slower rate in 2005 than the 3.9 percent growth experienced in 2004. Core inflation (excluding food and energy costs) should continue to be low, but high energy prices are starting to filter into the prices of goods and services and have already depressed consumer spending, the company said.

"The disappointing economic news over the past few weeks is not likely to cause the Fed to deviate from its measured pace of quarter-point increases in the federal funds rate when it meets today, but it could cause the members of the Federal Open Market Committee to change their stance on future rate increases," noted Nothaft.