Statistics on the Mortgage Refi Boom

In remarks to a recent convention of the Independent Community Bankers of America, Federal Reserve Board Chairman Alan Greenspan provided a startling summary of the dimensions of last year's (2002) boom in mortgage refinancing. To quote Chairman Greenspan, "Last year was surely one of the most memorable years ever experienced by the home mortgage market." The lowest mortgage interest rates in more than three decades triggered the refinancing of over 10 million regular home mortgage loans (excludes home equity and construction loans). The volume of these refinanced loans exceeded $1.75 trillion, setting an all-time record and equaling one-third of the value of all regular home mortgages outstanding at the beginning of 2002. Mortgage originations totaled $2.5 trillion, also a record.

Households cashed out about $200 billion in home equity, net of fees, taxes, points and commissions, representing about 3% of total home equity at the beginning of 2002. In no year prior to 2001 did cash-outs exceed 1.75% of total home equity. Of the cash outs in 2002, about $70 billion was applied to repayment of home equity loans. Federal Reserve Board economists infer that another sizeable chunk was used to pay down higher-interest credit card debt, judging from the slowdown in growth of revolving credit. In addition, perhaps half of the funds from cash-outs were plowed back into home modernization and personal consumption expenditures, the sort of activity that boosts Gross Domestic Product and job creation. Greenspan noted that the ease with which homeowners can tap home equity has played a substantial role in translating declines in home mortgage rates into additional consumer spending. "Even as recently as the 1980s, a family that wanted to use housing wealth to finance consumption would have faced an expensive and time-consuming process. Although substantial home equity wealth has existed for many years, only in the last decade or so has secured borrowing against home equity become a cost-effective source of credit in a wide variety of circumstances."