By Ben Rodgers
Editor
BROWN COUNTY – A recent study indicates a high percentage of cash-out mortgage refinances across the nation might be a sign pointing to another recession, but local experts aren’t bullish on the idea.
A study recently released by Refi Guide, comprised of compiled data from Freddie Mac, shows an increasing percentage of cash-out mortgage refinances.
The study identifies these types of refinances as one of the factors which helped cause the Great Recession around 2008.
People generally refinance a mortgage for a lower interest rate, better term or to take cash out for major purchases like a new vehicle or home remodel.
However, the study notes Wisconsin has the lowest percentage of cash-out refinances in the nation through the first quarter of 2019.
Marc Schaffer, associate professor of economics and director of the Center for Business and Economic Analysis at St. Norbert College, said the trend is nothing to be alarmed about.
“If you look at the myriad of things that led to the perfect storm of the financial crisis, I don’t see anything right now that would lead to it from my perspective,” Schaffer said.
He is quick to point out there is currently a lower number of mortgage refinances in general than compared to before the Great Recession, and with a lower number in total, there generally should be more cash-out refinancing.
“The level of cash-out refinances is remaining similar to historical trends, but the total amount of refinances is going down, which is making the total amount of cash-out refinances rise as its share of refinances,” Schaffer said.
He said interest rates right now are low, but not at historically low levels, and with the Federal Reserve indicating those low rates may rise, that pressures consumers to refinance and lock in a lower rate.
Moreover, Schaffer attributes steadily increasing property values to increased consumer confidence, which also has a hand in the number of refinances.
The confidence level of consumers is at or near where it was before the Great Recession, he said.
“People feel comfortable right now, confident because the economy is going strong and everything is great,” Schaffer said.
Around Brown County, property values have continued to tick up over recent years.
Though the market here isn’t as volatile as more urban markets in the nation, value has slowly been increasing from De Pere to Suamico.
For Dave Hartman, a mortgage lender at Inlanta Mortgage on Velp Avenue, refinancing with higher values and lower rates makes sense for some people, especially with values being higher.
“I think it’s an indication of values increasing, rates being low or at about a three-year low right now, and really, for a lot of folks, it’s maybe a sound financial move,” Hartman said. “Hey, you got a car loan that’s running $450 a month at 8 percent interest and you can cash out and refinance your house at 3.75 percent and your mortgage payment is going to go up maybe $80, that really makes a nice cash flow improvement for that individual.”
With the Great Recession also came something that has never happened before, the failure of the housing market.
Because of that failure, Schaffer said he believes more attention is now paid to any possible indicators of a faltering economy.
“Some of that extra concern now might be because we lived through something really terrible,” he said.
In the wake of the Great Recession, Hartman said the mortgage lending process has tightened up significantly, which is good because subprime mortgages were one of the major causes of the crisis.
“All we can really speak from is our own experience,” Hartman said. “So I started in 1998. I saw a pretty nice run, I saw guidelines get very loose and then I saw it come down pretty hard. Are we due for a correction or a leveling? Possibly.”