Have You Heard Of The Cash-In Refinance?

This is booming in popularity.

Leading up to the housing crash, people tended to use their homes as ATM. They'd take out massive HELOC (Home Equity Line Of Credit). They'd borrow against the equity they had built up in their home to pay off credit card debt or the like. Then they often built up that credit card debt again and when the value of their home plunged in the crash, they were in a very tough position.

From 2005 to 2007, American home owners lost about $7 trillion in equity. This is unprecedented in American history.

Now we have a phenomenon that is the opposite of taking equity out of your home.

Kenneth R. Harney reports:

"It almost sounds un-American," quipped Frank Nothaft, chief economist for mortgage giant Freddie Mac. After all, Americans have grown accustomed over much of the last two decades to tapping into their equity — pulling out a chunk of cash and adding to their debt load — when they refinanced their mortgages. "Almost nobody thought of putting money back in."

Cash-outs hit their highest level of popularity during the wild appreciation streaks in the early and middle years of the last decade. In mid-2006, just before home values began deflating across the country, the rate of cash-outs hit 88%, according to Freddie Mac, which monitors refinancings quarterly.

This meant that nearly 9 out of 10 refinancers whose loan files were sampled by Freddie Mac increased the size of their mortgage balance by at least 5% in the process. It was the heyday of the pile-on-more-debt mind-set — cash me out, I can't lose on my real estate — that came crumbling down in 2007 and 2008, when home equity holdings shrank drastically and painfully.