Feeling too chipper this morning?

A friend emailed me this article on the massive refinancings during the bubble years. I knew refinancings were huge but nothing shows it better than the graph below.

Of course, many of those refinancings were cash out refinancings which is why many folks are under water right now or, perhaps, why they lost their home.

[I’m liking more and more the Texas law that says after you refinance you have to keep at least 20% of the equity. That law would have saved a lot of families in Arizona from losing their homes because it would have prevented them from cashing out so much of their equity, blowing the money, and ending up in foreclosure.

More important to Joe Homeowner who didn’t refinance, that law would have made the Arizona real estate boom smaller and the Arizona real estate bust smaller. Many people used money from their cash-out refis for the down payment on their “invest” homes. So instead of owning one home they ended up losing two homes, helping drive down home prices for everyone. (Texas had almost no real estate boom or bust.)]

Anyway, the article does a great job of explaining the details of the massive refi boom.


  • [2004] According to Freddie Mac, roughly 40% of all homeowners who refinanced that year pulled money out of their refinanced mortgages to spend as they pleased.
  • [2005] Some 72% of all homeowners who refinanced pulled cash out of their piggy banks to the tune of $262 billion.
  • [2006] According to Freddie Mac figures, roughly 86% of all homeowners who refinanced that year pulled cash out – nearly $320 billion.

All the refinancing pumped a huge amount of money into the economy. It was a huge boost to the economy that we’ll never see again (hopefully). What remains now from this big adventure is a massive amount of consumer debt.