"Mamas Don't Let Your Babies Grow Up to Be Vintners" or the of Story Domaine Templier, Spiced Up by Our CashOut Refi Outlook for 2025

Today, we will focus on the evolution of cashout refinancing as an integral driver of the OTM prepayment speeds. And while cashout refis is an important (yet not the only) tool of unlocking a considerable housing equity that has been accumulating during the past 48 months, it carries its own dangers, as many borrowers exhaust an important part of the total household savings, making them more vulnerable at the time of crisis.

To be sure, close to 34% of the cashout proceeds of equity extraction gets "re-deployed" into home improvement projects, thus enhancing the value of these properties. When it comes to yours truly (and yours truly only), if I were to take some equity out of my house, I would use just a bit of it to acquire a case or two of one of my absolute favorite French wine, Bandol, produced by the amazing Domaine Templier.

Most of my wine recommendations tend to focus on (more or less) everyday bottles ($20-$40 price range). Today, I am stepping out of my comfort zone and into a $70 price point, but trust me, as a special occasion wine - it is SO WORTH IT!

Domaine Tempier is a "wine, and it is also a family; exuberance and finesse are the traits common to both,” wrote Richard Olney back in 1984. What’s remarkable about this simple yet spot on-observation is how true it rang then, how true it rang forty years prior to that, when Tempier had just released its first wine, and how true it still rings today, forty years later. Here are some remarkable bits of their history (with some awesome pics kindly provided by this amazing family):

1834

Tempier domain already existed during the reign of King Louis the 15th and the “bastide” was built on the family’s property in 1834. It was soon rewarded as it received its first gold medal a year later in 1835.

1910’-1930’

In 1880, after the phylloxera epidemic had ruined the French wine trade, Léonie Tempier (who was Lucie Tempier’s great grandmother) began the renewal by having her vineyard completely replanted on root-stocks, and a cellar built with wooden and cement vats. However, the 1929 crash caused the wine business to plunge and vines were partly replaced by peach and apple trees.

1940

In 1936, Lucie Tempier, whose father was a leather importer in Marseilles, married Lucien Peyraud whose father dealt in silk and ribbons and whose grandfather was a gunsmith in Saint-Etienne, a city close to Lyon. Lucien Peyraud wanted to be a wine-grower. He studied farming in Aix and had several work experiences in the area before he and Lucie settled at Domaine Tempier in 1940, consequently to difficulties due to the beginning of the war.

This was the beginning of a grand epic for Bandol wine, thanks also to the pioneering efforts of Mr Roethlisberger and Mr Perrone, President of the Association to Promote the Bandol Label of Origin. Lucien became a member of the Association’s Board, and also of the Tasting Saand Quality Control Commission. Life was difficult at the time since they had neither electricity nor running water. Lucien rode his bicycle to Toulon to attend the meetings.

There must be something in the water, or the wine, down at Tempier, as everyone in each succeeding generation seems to laugh, smile, live long, and live well (it’s been nearly a century of constant joyous commotion at the estate, with countless gatherings of family, friends, and clients over apéritifs and legendary meals). The family and the team at the helm of Tempier today continue to keep these traditions alive, the wines just as expressive, soulful, and unquestionably proven?al as always, and the domaine a place of welcoming joviality, same as it ever was.

1951

1951 is the year when the first red bandol wine was produced at the domain. The bottle label was designed and drawn by Lucie Tempier’s father, Alphonse Tempier. This label with the departure of the wine bottles in tartan boats from Bandol harbor on it has not changed much since then as it embodies the spirit of the domain so well.

1960-70s

Lucien Peyraud spent 37 years in this endeavor. His objective was to have the aging quality of Bandol wine recognized alongside the renown wines of France –Bordeaux, Burgundy, C?te-R?tie, Hermitage or Chateauneuf wines- by basing it on a major vine – the Mourvèdre.?

During this crusade, thanks to his persuasive efforts, Lucien Peyraud became the spiritual father of Bandol wine. Today, the Mourvèdre dominance has become a reality in the minds of all the Bandol winegrowers.

Lulu and Lucien also played a part yearly meetings called “Paulées” and created by Mr Vrinat who owned a restaurant called “le taillevent” in Paris, where wine growers showed their wine while having a nice gastronomic meal.

In the early sixties, it was a great satisfaction for Lucie and Lucien to have their two sons, Jean-Marie and Fran?ois, who could join them in their ceaseless efforts to improve and promote the quality of Bandol wine. Jean-Marie was in charge of vinification and marketing while Fran?ois became a crop manager. Because they noticed major differences between parcels, they decided to vinify La Tourtine and La Migoua vines separately and later on Cabassaou as well.

Both sons got heavily involved with their father into the French Wine Academy, in the international Wine Academy and also in other wine brotherhoods such as the “confrérie de la Méduse”. Their journeys inspired them, especially in Bourgogne where they discovered the climate. That’s how they imagined and created “les Cuvées du Terroir” which still are today the special features of the domain. That’s when they started competing on international markets on which Domaine Tempier acquired a great reputation, especially in the United States. They additionally established green wine harvest so as to allow the vines to strengthen.

2000

Time passing, Jean-Marie and Fran?ois decided to step down in 2000 and their sisters joined them in the Board of Directors. Fleurine, Marion, Laurence and Véronique are strongly attached to the Domaine, they play an active role in its future.?

This bottling is named in honor of the much-loved and greatly missed founders of the estate, who not only built up Tempier from ruins during tumultuous and trying times, but also helped to bring the luster back to the long-neglected Bandol region as a whole. Tempier says this is their signature Bandol; it’s a blend of dark fruit and vibrant stony minerality—a classic expression of what they do best.

Cash-Out Refinances: Shifting Trends and the Road Ahead

* Cashout Refi is a critical component of the overall refi picture and even more important as a driver of the OTM speeds. Thus, the purpose of this brief publication is to assess the most recent developments in this space, and anticipate how 2025 is likely to unfold with respect to cashouts.

* Borrowers executing a cash-out refinance in 2024 have contributed only 0.7-1.3 CPR to total 30-year conventional speeds this year, echoing 2023’s rates, while falling far short of the busier years like 2018, when the cash-out contribution to total CPR spiked to almost 2.75 CPR. Over the past two years, despite fluctuations in mortgage rates, cash-out refinances have remained relatively stagnant. What does the future hold? Let’s explore how 2025 could reshape the cash-out refinance landscape.

The 2025 Forecast: Will Cash-Out Activity Reignite?

* As we look to 2025, the likelihood of cash-out refinances gaining momentum hinges on whether mortgage rates start to decline. While a drop in rates would likely spur some movement, we do not expect a return to the refinance frenzy of the post-COVID years. Homeowners now have more alternatives to traditional cash-out refinancing, such as HELOCs and second lien loans. These options could keep cash-out refinancing activity lower even if mortgage rates drop. The increasing popularity of alternative equity-extraction methods may temper any substantial growth in cash-out refinances next year.

As Equity is Growing, So Does the Temptation to Tap Into It

* Rising home equity is one positive factor that could influence future refinances. As home prices continue to appreciate, the share of borrowers, who can access at least 20% of their home equity through cash-out refinancing has risen to 66% in 2024. Yet, high DTI remains among the most important non-rate obstacles.

* With mortgage rates still elevated, many borrowers would struggle to maintain a DTI below 45% if they refinanced. Currently, only about 12% of homeowners could comfortably refinance, tap into their equity, and keep their DTI below 45%, a long way from the 28% peak seen during the refinancing boom of 2021.

Competing Choices for Equity Extraction

* For borrowers, who are looking to access their home equity, cash-out refinances are no longer the only game in town. HELOCs and second lien loans are becoming increasingly popular alternatives. How do borrowers decide which route to take?

* It depends on several key factors, including interest rates for each product, the amount of equity the borrower wants to access, and the current LTV. When mortgage rates hover around 6%, about 40% of borrowers may find cash-out refinancing the better option. If, on the other, the gods of mortgage rates push them down to 5%, that number could double to 82%, making cash-out refinances more appealing, particularly for lower-LTV borrowers.

Cash-Out Refinances in 2024: Steeper Prepayment Curves

* One significant change in 2024 has been the steeper prepayment curves for cash-out refinance loans compared to non-cash-out loans. This trend marks a departure from previous years, where cash-out loans generally had flatter prepayment curves. What’s behind this shift? Two major factors are contributing to the steeper prepayment curves for cash-out refinances:

1. Appraisal Waivers: More cash-out loans are benefiting from appraisal waivers compared to non-cash-out refinances, and these loans tend to prepay faster when they are in-the-money (ITM). For some lenders, such as Rocket Mortgage, the number of appraisal waivers for cash-out loans has increased, while the use of waivers has decreased for non-cash-out refinances. 2. Non-Bank Lenders: Non-bank servicers, which generally see faster prepayments than traditional banks, are taking a larger share of the cash-out loan market. Major players like Rocket, Freedom, and PennyMac have expanded their presence in this space, contributing to faster prepayment rates.

* These trends are likely to keep prepayment curves for cash-out refinances steeper than those for non-cash-out loans into 2025 (note that most of this "steepness" comes from the ITM disadvantages of cashout loans.

Thank you for Reading, Dreaming, Traveling With Me....

Sincerely Yours,

Kirill A. Krylov, CFA, PhD