Risky cash-out refinance loans now double in volume

While the overall volume of refinance mortgages continued to dwindle due to higher interest rates, historically riskier cash-out refinance loans accounted for 74% of all refi originations in the second quarter. That’s almost double the cash-out refi volume of 34% in all refinance originations in 2021.

“Cash-out refinance loans historically have higher default rates compared to rate-and-term refinancing,” said Jonathan Glowacki, a principal at Milliman and author of the MMDI. “In 2022, there’s been an increase in cash-out refinance originations compared to the prior year, which is a contributing factor in the increased mortgage default risk we’re seeing.”