Have Homeowners Strengthened Their Fiscal Houses?

mortgagepic1Freddie Mac (FMCC.OB) – which was chartered by Congress in 1970 to provide additional security liquidity, stability, and affordability to the U.S. housing market – reported Monday that its refinance analysis has shown that “homeowners who refinance continue to strengthen their fiscal house” in the fourth quarter.

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Home loan borrowers have put their fiscal house in order amid the growing economy, with 84 percent of of homeowners who refinanced their first-lien home mortgage maintaining the same loan amount or lowering the principal amount by bringing additional funds to the closing table.

Homeowners who refinanced also reduced interest rates by 33 percent, the largest decrease in the institution’s 27 years of analysis and a drop of 1.8 percentage points from the previous quarter. On a $200,000 loan that translates into savings of approximately $3,600 in interest during the following 12-month period, said Freddie Mac Vice President and Chief Economist Frank Nothaft in the press release.

Not only are Americans paying off mortgages at a fast pace and at low interest rate, they are also choosing to cash out less often. In the fourth quarter, an estimated $8.1 billion in net home equity was converted to cash as part of a refinance, down from $8.2 billion last quarter. The peak of cash-out refinancing came in the second quarter of 2006, when homeowners took out $84 billion. This means is that more homeowners are cashing in and lowering the amount owed on mortgages, rather than cashing out…

The refinancing report compiled by Freddie Mac gives insight into the condition of housing market. In particular, the data showed the ability homeowning Americans to handle their mortgage payments in the last three-month period.

Two other housing reports issued last week gave a slightly more mixed view of the housing recovery.

Last Monday, the National Association of Realtors announced that its seasonally adjusted index fell 4.3 percent to 101.7 in December from November’s record reading of 106.3. However, the results were not a complete step backward; December’s index reading was a 6.9 percent increase from the previous year, and for the past 20 consecutive months, pending home sales have stayed above year-ago levels.

Standard & Poor’s Case-Shiller composite index of 20 metropolitan areas gave a more positive view, showing a 0.6 percent gain for the month of November. The rise contributed to a 5.5 percent gain year-over-year, the greatest yearly price increase since August 2006.

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