Years into the refinance boom Black Knight Financial
Services estimates there are still millions of homeowners who could qualify for
and benefit from turning in their existing mortgages for a new model. The company, in its current Mortgage Monitor says that group
includes about 5.2 million homeowners and that 2.4 million of them could save
$200 or more per month through refinancing.
The pool is shrinking however as interest rates rise and
Black Knight estimates that a 50 basis point increase in rates would eliminate
2.1 million potential candidates from refinance eligibility, a 42 percent drop. A full point increase would take out an
additional 1 million borrowers.
There is still a lot of equity out there that homeowners
could utilize if they wished. That "tappable"
equity is probably around $4.2 trillion and has increased by $600 billion in
the last 12 months.
But even as homeowner equity has increased, the pool of
potential refinancers has shrunk, down from over 7 million as recently as April
2015 when 30 year rates were below 3.7 percent.
Black Knight put the 30-year fixed rate at the time of its analysis at 3.96
Black Knight Data & Analytics
Senior Vice President Ben Graboske explains.
"Looking at current interest rates on existing 30-year mortgages and
applying a set of broad-based underwriting criteria, we found that there are
still approximately 5.2 million borrowers that make good candidates for
traditional refinancing. The full-point
increase mentioned above, he says, would leave only 2 million potential
refinance candidates, the lowest number in recent history.
While at present over 2 million
homeowners would be able to save $200 or more on their monthly mortgage
payments post-refinancing, Graboske said, this is a very rate-sensitive population. With a 50-basis-point rise in rates a million
of them would see those savings fall to an average of less than $100. However the largest share - about 38 percent
or 1.8 million borrowers, would still see savings in the $100 to $200
range. This would mean an aggregate
monthly savings of about $1.2 billion across the 5.2 million potential refinancers.
He continued, "We also looked again at
the amount of tappable equity available on each home with a mortgage - by using
an upper limit of 80 percent current combined loan-to-value (CLTV), including
first and second liens. In total, we're looking at over 37 million borrowers
with current CLTVs below 80 percent that have an average of $112,000 equity
available to tap in their homes, an increase of 3.1 million from just a year ago.
Roughly half of that tappable equity belongs to borrowers whose first-lien
mortgages have current interest rates higher than today's 30-year rate - making
them potential candidates for cash-out refis - but the other half are under 4
percent. While it's not a hard and fast rule that borrowers won't refinance
into a higher rate in order to tap available equity - 23 percent of cash-out
refi borrowers over the past six months did just that - for the most part, as
rates rise, HELOCs will continue to become more popular to homeowners looking
to tap available equity."
While there is now nearly twice the amount of tappable
equity as there was at the bottom of the housing market that amount remains
about 17 percent below 2005 levels.
Nearly 1.6 billion or 38 percent of this equity is in California with
Texas and Florida following at 6 percent each.
Black Knight's November 2015 data showed
that HELOC originations have continued to rise. There has been year-over-year growth in
originations in each quarter since the beginning of 2013 and the total credit line
amounts originated climbed 35 percent in 2015 through November compared to the
same date in 2014. The numbers of loans
have not risen as fast, the count was up 8 percent in the third quarter from Q3
2014 and up 8 percent year-to-date.
At the same time traditional second
lien mortgages have become relatively non-existent. Those loans are down 10 percent year-over-year.
Credit score for HELOC loans remain
near historic highs. Nearly 70 percent
of those loans by count and 75 percent by loan amount are going to borrowers
with credit scores of 760 or higher with only 2 percent are going to borrowers
with scores below 680, the lowest share in over 10 years.
The average HELOC credit line is nearly
$114,000, the highest since Black Knight began tracking this data back in 2005.
However, while HELOC line amounts may be at 10-year highs, initial utilization
rates - a key HELOC risk factor - are near 10-year lows. In addition, the
average resulting CLTV for borrowers with second-lien HELOCs is 66 percent,
well below the 75-76 percent range seen during the bubble era. Nearly 43
percent of HELOCs are on properties valued over $500,000, the highest share on
record, and 70 percent are on properties over $300,000. Only 12 percent were given on homes in the
lowest price tier - under $200,000, the smallest share on record. When
home prices were at their peak in 2006 roughly 35 percent of HELOCs were given
on properties of over a half-million.