Not surprisingly, the days of using our homes as ATMs with no withdrawal limit are over.

Freddie Mac reports that, in the second quarter, net dollars of home equity converted into cash as part of refinancings of conventional, prime mortgages totaled about $7.5 billion. That was about the same as in the first quarter, but well below the peak of $83.7 billion converted in the second quarter of 2006.

Combining the first two quarters of 2011 and adjusting for inflation, the amount of equity cashed out fell to the lowest level since the second half of 1996.

As we have come to realize - many of us to our regret - a lot of the "equity" we were allowed to extract from our houses during the boom years didn't really exist.

Cashing out equity was, in fact, borrowing against the possibility, however unrealistic, that the value of our homes would be equal to or more than our mortgage balances - or the sum of all our loans - when we sold them.

About one-quarter of U.S. homeowners, it appears, bet wrong. That's about the percentage of owners whose houses are now worth less than their mortgage balances.

If you have a job and can afford to pay your mortgage and all your other debts every month, this situation, though stressful, isn't fatal.

If you need to sell your house for some reason, or just decide that you want to, it becomes a problem that leads to a short sale, in which the bank agrees to accept a sale price that is less than the mortgage balance.

If you are a child of Depression-era parents and grandparents, as I am, you would have spent a lot of your youth listening to stories of the hardships millions of Americans faced during the 1930s.

These people knew better than to borrow money against a house because some fast-talking banker told them it would never drop in value.

A house was a place to live. You took care of it and tried to pay off the mortgage as soon as you could.

Refinancing? It didn't exist in the Depression and only became useful later to cut high interest rates to better ones.

Every generation seems to get a wake-up call, however, and this one is no different.

In the second quarter of this year, Freddie Mac says, 77 percent of homeowners who refinanced first-lien home mortgages either maintained about the same loan amounts or lowered their principal balances by paying additional money at closing.

Of these borrowers, 51 percent maintained about the same loan amounts, and 26 percent of the refinancing homeowners reduced their principal balances.

The median interest-rate reduction for a 30-year fixed-rate mortgage during the second quarter's refinancing was one percentage point, or a savings of about 18 percent in interest rate.

Over the first year of a refinanced loan's life, the borrower will save more than $1,550 in interest payments on a $200,000 loan, according to Freddie Mac.

Its chief economist, Frank Nothaft, calls this "primarily a 'rate-and-term' market, meaning that the typical homeowner is looking to cut their interest rate or shorten their loan term."

"More than three in four borrowers are keeping their loan balance about the same or reducing their loan balance when they refinance," he said.

In the last five years of the loan being refinanced, the median value of the property fell 7 percent, compared with the 25 percent drop shown by the Freddie Mac House Price Index between March 2006 and March 2011.

Homes of borrowers who refinanced loans in the second quarter held their value better than the average home, "or it may reflect value-enhancing improvements that owners had made to their homes during the intervening years," Nothaft said.

On the House:

Inquirer real estate writer Alan J. Heavens' home improvement column appears Fridays in Home & Design. See instructional videos at Al's Place. Go to


"On the House" appears Sundays. Contact Alan J. Heavens at 215-854-2472,, or @alheavens at Twitter.