Opinion: This home mortgage disaster is ready to punish housing markets

Opinion: This home mortgage disaster is ready to punish housing markets

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In a MarketWatch column last March, I discussed the serious threat that cash-out refinances (cash-out refis) pose for major U.S. housing markets. Eight months later, the problem continues.

To reiterate, in a cash-out refinance mortgage the borrower pulls out some of the equity in the house by taking out a new mortgage larger than the previous one. The homeowner pockets the difference and can use the money in any manner.

During the 2004-07 housing bubble era, homeowners in major metros used their growing equity as a piggy bank to tap at will. According to Freddie Mac’s quarterly refinance report, borrowers pulled out just under $1 trillion from their homes between 2004 and 2007. This total includes only prime first-lien conventional mortgages, and excludes subprime, other non-prime, and second mortgages.

Read more at MarketWatch

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