Refinancing homes gives consumers extra cash

By Jeannine Aversa
Associated Press

WASHINGTON — Many Americans, taking advantage of falling mortgage rates, took out even bigger loans when they refinanced their home mortgages, the Federal Reserve reported recently.

Economists say extra cash coming from the nation's refinancing boom has been one of the key forces helping to keep consumers — the lifeblood of the economy — spending this year, even amid the turbulent stock market, a stagnant job market, eroding consumer confidence and worries about a possible war with Iraq.

The Fed, in its quarterly loan officers survey, found that almost half of the 48 U.S. banks that responded to this question said that between 20 percent and 40 percent of customers refinanced their home mortgages during the past six months engaged in "cash-out refinancing," meaning they increased their loan balances at the time of refinancing.

For customers who took out bigger loans when they refinanced, about 70 percent of banks said that the typical increase was between 5 percent and 15 percent of the original outstanding balance.

And, 82 percent of the U.S. banks surveyed said that the average home price in the markets that they serve had gone up "substantially" or "somewhat" in the last 12 months.

Economists say that rising home values has been another factor supporting consumer spending this year. "However, many banks expect these increases to moderate or partially reverse over the next 12 months," the Fed said in its survey.

Overall, the Fed said that from August to October, 90 percent of U.S. banks kept credits standards for home mortgage loans largely unchanged.