For several years, homeowners backed by the FHA have had the ability to refinance their mortgage to extract cash, also known as a cash-out refinance. This financial trend, while rather popular, is deemed risky by some. Recently, the Department of Housing and Urban Development announced that starting September 1, it will lower the loan-to-value requirements on cash-out refinances from 85% to 80%. This action is in an effort to curb the number of cash-out refinances taking place by limiting the number of people who qualify.
The FHA stated in its annual Report to Congress issued last fall that cash-out refinances represented 64% of all FHA-insured refinance transactions. This number is up nearly 39% from the year prior.