Misconceptions Surrounding Cash-Out Refinancing

refi imgeLast week, The Wall Street Journal ran an article on cash-out refinances entitled, “Borrowers Are Tapping Their Homes for Cash, Even as Rates Rise.”

Because of the numerous misconceptions in the article, MBA submitted a letter to the editor in an attempt to address them. Unfortunately The Wall Street Journal decided not to run it—but I’d like to share the content of the letter with you.

Letter to the Editor
The Wall Street Journal
1211 Avenue of the Americas
New York, NY 10036

To the Editor:

The Nov. 25 article, “Borrowers Are Tapping Their Homes for Cash, Even as Rates Rise,” points out that rising home prices and mortgage rates are leading to cash-out refinances becoming a larger share of the  refinance market. This is true, as refinances designed to reduce interest rates recede as rates rise.  

The notion, however, that mortgage lenders are irresponsibly doling out money to cash-hungry homeowners is not supported by the facts. Data from Freddie Mac shows that quarterly cash-out volume averaged $60.4 billion from 2004-2007. In the third quarter of this year? Just $14.6 billion.

Today, the dollar volumes are much lower, and there are regulatory safeguards in place that remove risky products and ensure that borrowers have an ability to repay their mortgages. There won’t be a return to the equity-stripping practices of some subprime lenders that occurred over a decade ago. The mortgage industry is following these rules and regulations, and will continue to lend responsibly.

The ability to access home equity provides many beneficial purposes for homeowners, including having additional cash to make home renovations, pay for a child’s education, supplement retirement income, pay down other high-interest debt or invest in growing a business.


Bob Broeksmit
President and CEO
Mortgage Bankers Association
Washington, DC


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