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Just Released: An Analysis of Mortgage Refinancing, 2001-2003

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The total number of refinance loans has increased from
approximately 2.5 million in 2000 to more than 15 million
in 2003. In addition, household wealth, in the form of
home equity, has increased substantially because of house
price appreciation.

What is the impact of refinancing on these households'
consumption and debt burden? What are the pre-tax payment
savings? How are households using their mortgage payment
savings and what are they doing with the cashed-out
equity? To what extent are minorities participating in
this refinancing wave?

HUD's Office of Policy Development and Research (PD&R) is
pleased to announce the release of An Analysis of
Mortgage Refinancing, 2001-2003, which attempts to answer
these questions and to provide statistics and
demographics that can help us better understand the kinds
of households that have refinanced their mortgages in
recent years.

The paper is divided into four sections, with Section I
serving as the introduction. Section II provides
statistics on the recent refinancing wave and compares it
to the heavy refinancing activity seen in the 1990s.
Section III characterizes households' motivations for
refinancing and estimates the impact of refinancing on
household savings and consumption, while Section IV
provides descriptive statistics on the demographics of
households that have refinanced during the latest 'refi'
wave.

The authors note that:

o Between January 2001 and June 2003, mortgage interest
rates dropped by more than 20 percent. For example, in
first quarter 2001 the interest rate was 7.01 percent and
in second quarter 2003 it had dropped to 5.52 percent.

o The total number of refinance loans increased from
approximately 2.5 million in 2000 to more than 15 million
in 2003.

o The total pre-tax payment savings available to
households that refinanced their loans between January
2001 and December 2003 grew to an estimated $3.6 to $4.0
billion per month by year-end 2003, for a potential
cumulative mortgage payment savings of $54 billion to $61
billion through March 2004.

o Households converted an estimated $139 billion of home
equity into cash in 2003.

o Approximately 35 percent of cashed-out equity has been used
for home improvement. Refinancing in 2003 alone helped fund
approximately $100 billion in home improvements.

o Households have used 47 percent of their cashed-out
equity either to pay off high-cost consumer debt or to
make investments. Households at all income levels have
taken advantage of opportunities to refinance their
mortgages.

o Minorities have also taken advantage of recent drops in
the interest rate. However, African-Americans and
Hispanics continue to rely disproportionately on higher-
cost subprime loans to refinance.

An Analysis of Mortgage Refinancing, 2001-2003, including
graphs and tables, is available on the web at
https://www.huduser.gov/portal/publications/hsgfin/MortgageRefinance03.html.
This paper is not available in printed form, but can be
downloaded free of charge.
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