Housing slump drags on cash-out activity

WASHINGTON, Feb. 8 (UPI) -- Declines in home values and stricter loan standards combined to push equity cash-outs down in the fourth quarter of 2007, Freddie Mac reported Friday.

At the same time, rates on jumbo mortgages for prime borrowers became relatively much more expensive compared to conforming rates, said the federally supported lender's chief economist Frank Nothaft.

The higher rates on jumbo mortgages "put a damper on refinancing activity," Nothaft said.

February's report on cash-out refinancing for the fourth quarter of 2007 says 81 percent of the refinanced loans during the quarter were at least 5 percent higher than the original loan balances. This compares to 86 percent of the same figure for the third quarter.

Nothaft said that those who stay with a loan long enough can weather through the market's slump. "In 2008, we expect borrowers who refinance will be those who have had their homes long enough that recent house price declines are not a serious threat to equity," he said.