Mike Shedlock
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With mortgage refinancing activity down 30% between May and September, will homeowners turn to home equity lines for cash?

That is a possibility suggested by the LPS Mortgage Monitor. Via email ...

"We have seen prepayments decline by more than 30 percent since May, when mortgage interest rates began climbing approximately 100 basis points to where we are today," LPS Senior Vice President Herb Blecher said. "As a result, the percentage of borrowers currently in loans with interest rates high enough for refinancing to make fiscal sense has decreased significantly. Over half of borrowers are now 'out of the money' with respect to refinancing. In December 2012, the population of potentially refinance-eligible borrowers stood at roughly 10 million. However, refinance activity during that time, along with rising interest rates, have shrunk that pool to just 5.7 million borrowers as of August.

"While higher interest rates may certainly have the effect of tamping down refinance activity, they may actually wind up contributing to a new appetite for home equity loans among homeowners," Blecher continued. "After bottoming out at the beginning of 2012, home prices are now at their highest levels since 2009, and borrowers who bought or refinanced within the last few years are quite likely to have accumulated additional equity in their homes. Based upon LPS' analysis of historical borrowing patterns and home value trends, it is possible that we could see an increase in second-lien borrowing among those who have locked in their first mortgages at very low rates and who wish to tap their equity without refinancing into a higher rate."
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Mike Shedlock

Mike Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management.
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