Cash-In Refinances: Another Sign of a Market on the Mend?

by Alex Stenback on February 2, 2011

The Washington Post published an article yesterday on the formerly unheard of “Cash-in” refinance that has seen a recent, an unprecedented surge:

“In the fourth quarter, 46 percent of borrowers who refinanced their primary mortgages brought cash to settlement to lower the balance on their loans, Freddie Mac said. That’s the highest share of so-called “cash-in” refinances since the company started tracking the numbers in 1985.”

At first blush, this may seem like another story that begins and ends with the crash in real estate prices since the heyday of the ‘cash-out’ refinance –  when almost 90% of refinances included some form of cash out. (!!)

But I see it as a healthy sign for the real estate market, and the economy.  These are committed homeowners, who through good fortune and/or hard work have accumulated savings and are re-investing in their homes rather than hoarding cash.  Perhaps more importantly, they are re-calibrating their price expectations for that day when they might also be a seller. 

Unless the economy runs off the rails again, I’d bet the 2010 class of cash-in refinances will be some of the best performing mortgages since the term was invented (13th century, by the way.)

Seeing household balance sheets getting repaired like this warms my little Bankers heart, and we can probably expect at least some of the monthly savings channeled back into the broader economy. 

It may be a slow motion recovery, but if that’s what means to recover without returning to the credit card and cash-out refinanced fueled profligacy of prior years, I’ll take it.

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