Sandy’s Weblog

In the fourth quarter of 2008, U.S. homeowners cashed out $17.5 billion in home equity through the refinance of prime first-lien mortgages, the lowest amount since the first quarter of 2001, according to Freddie Mac’s quarterly refinance review.  This is down from a revised $28 billion in the third quarter.  In addition, 14 percent of refinancing homeowners paid in extra money when they refinanced, reducing their mortgage debt. This is the highest cash-in share since the fourth quarter of 2004 when 19 percent of refinancing homeowners put cash into home equity. Also at a four-year low, the share of refinance loans resulting in new loan amounts that were at least 5 percent higher than the paid-off first-lien mortgage balances fell to 62 percent in the quarter.  The third-quarter cash-out share was revised down to 76 percent.

“Mortgage rates for conventional conforming 30-year fixed-rate loans fell to a new record low in the final weeks of the fourth quarter of 2008, giving borrowers an opportunity to save quite a bit on their monthly payment.  When interest rates fall sharply we tend to see more borrowers go for a simple rate-and-term refi that lowers their payment or lets them keep their payment about the same but shorten the maturity of their mortgage obligation” noted Frank Nothaft, Freddie Mac vice president and chief economist.  “At the same time many borrowers who are attracted by lower mortgage rates take the opportunity to pay in additional money either to remove the need for mortgage insurance or to get to a lower loan-to-value ratio so they can qualify for the best rate.

“Borrowers who have owned their home for many years often have substantial equity in their homes. We found that, on average, borrowers who refinanced were replacing a mortgage that was 3.6 years old and over the time they had that mortgage their home value was up by 9 percent,” observed Nothaft. “In the fourth quarter of 2008, homeowners who refinanced lowered their coupon rate by one-quarter of a percentage point based on the refinance report’s median ratio of new-to-old interest rate.”

“In total, about $115 billion in home equity was cashed out by homeowners in 2008.  This is a little less than half the amount that was extracted in 2007,” said Amy Crews Cutts, Freddie Mac deputy chief economist. “Looking at regional trends over the year, the Midwest had the lowest share of refinancings that led to a 5 percent or higher new loan balance, at 53 percent, and homeowners in this region had the highest cash-in share at 12 percent.  The South had the highest share of cash-out refinance loans in 2008, at 71 percent, but the median age of the refinanced loan was nearly 4 years old while nationally loans had a median age of just under three years.  Moreover, refinancing homeowners in the South had seen home values go up an average of 18 percent over the time since the original loan was taken out versus 11 percent nationally.”

Oil prices fell by more than $1 below $70 a barrel on Tuesday, giving up earlier gains as doubts resurfaced over the pace of economic recovery and any rise in fuel demand.

U.S. crude was down $1.50 at $69.11 by 1356 GMT (9:56 a.m. EDT). London Brent crude fell $1.30 to $72.20.

“Oil was due a small pullback as it has been so sentiment driven over the past few weeks — fundamentally there’s not a great deal to hold it up there yet,” said Andrey Kryuchenkov, analyst at VTB Capital in London.

The dollar rose against the euro and U.S. stock index futures fell to session lows on Tuesday weighed down by financial shares and by caution ahead of the Federal Reserve’s two-day policy meeting.

A stronger dollar makes dollar-denominated commodities such as oil less attractive to non-dollar buyers.

Earlier, news that imports to China had surged by 42 percent in July to a record 4.62 million barrels per day gave oil prices a lift.

But after the open of the U.S. market, financial factors came back to the fore.

“I think the market will continue to test resistance and support levels in the recent range until further evidence surfaces that addresses the alleged recovery’s sustainability,” said Mike Fitzpatrick, vice president at MF Global in New York.

FUNDAMENTALS

OPEC left its forecasts for world oil demand unchanged in its monthly report with consumption expected to fall 1.65 million bpd in 2009 before rising by 500,000 bpd in 2010.

This was regarded as neutral for the market and analysts are braced for the U.S. government’s Energy Information Administration (EIA) monthly report, which they say will offer further insights into future supply and demand.

“The focus is going to be definitely on the demand and people will look for green shoots and upwards revision,” Petromatrix analyst Olivier Jakob said.

The United States last Friday reported the first fall in the unemployment rate for 15 months, prompting some oil analysts to anticipate a faster economic recovery, which could revive oil demand.

Analysts will also be watching weekly American Petroleum Institute inventory data late on Tuesday, followed by weekly U.S. government data on Wednesday.

The weekly data is expected to show gasoline stocks will have dropped by 1.5 million barrels in the week ending August 7.

Sandy Hutchens is watching the price of oil and will bring you the latest in all the important market news.