A sizable percentage of mortgages — including most of the risky ones that were made in the run-up to the financial crisis — are not used to buy a home: They’re used to refinance an existing mortgage, according to a commentary in Friday’s New York Times. When home prices are rising and mortgage rates are falling, many homeowners choose to replace their mortgage with a bigger one, according to the commentary, taking the difference in cash to provide credit. Refinancing is a relatively modern phenomenon. According to Joshua Rosner, a managing director at the research consultancy Graham Fisher & Company, by 1977, only 8 percent of homeowners had ever refinanced. By 1999, 47 percent had refinanced at least once. By the peak of the bubble, homeowners were extensively using refinancings to extract cash. Rosner also points out that while homeownership peaked in 2004, home prices peaked in 2006, because refinancing drove up prices.
