If you aren't convinced that Americans have undergone a fundamental change in attitude about debt, then perhaps some new data from Freddie Mac will help. The mortgage company reports that "cash-in" refinancing -- when a borrower puts in extra cash when refinancing their mortgage to achieve a lower balance -- hit a new high in the fourth quarter of 2010. Cash-in refinances rose to 46% of all volume, while cash-out shrunk to just 16%. That percentage of cash-out refinancings is also the fewest since 1985, as far back as Freddie provides data. These statistics looks even more fascinating if you look at some history.

Here's the chart since 2000:

cash-out v cash-in freddie 2010-q4.png

This is a truly dramatic shift. From the entire period of the fourth quarter of 2005 through the second quarter of 2007, cash-out refinancing (red line) accounted for more than 80% of total volume. Meanwhile, cash-in refinancing was at or below 10% of volume for 15 straight quarters starting in 2005.

The big question, of course, is whether this trend will continue. Looking at 2010, the recovery hasn't slowed the change. Cash-out refinancing continues to decline, while cash-in refinancing is growing rapidly.

Whether the trend will endure depends on whether the motivation is purely fiscal prudence or if other factors are at play. Stricter bank underwriting requirements could be forcing borrowers who refinance to pay down their balance to attain the ultra-low rates. Some homeowners who had jumbo mortgages might also be reducing their balance to qualify for lower conforming rates, which carry a government guarantee.

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