It was not new home loans that brought on the great housing crash of the 2000s but refinancing by existing homeowners, according to a new study by the Urban Institute. The thought is that many of those homeowners were treating their homes like cash ATMs, using the proceeds for vacations, boats, fancy new cars, motorhomes, etc.
The researchers found that 84% of government sponsored refinances in 2006 and 2007 were done to take cash out of the home's equity, and that those refis were more likely to have "sloppier" underwriting. In 2007, almost 16% of refis, but only 10% of purchase loans were more than 180 days delinquent.
Now that homes have regained much of their equity, the level of re-finances is again on the rise. Will we see a repeat of the mistakes of the mid-2000s? One would hope the lessons have been learned.