The Lender Processing Service (LPS)
February Mortgage Monitor found that
loan prepayment rates, historically a good indicator of refinancing activity,
have declined as interest rates have gradually trended higher. Although prepayments dropped by nearly 10
percent in February they are still very high by recent historical standards and
a very similar pattern exists for all of the more recent vintage loans. The prepayment rate for GNMA loans and to a
lesser extent portfolio loans appear to have remained somewhat immune to rate fluctuations.
Approximately a half-million
loans that were delinquent in January were current in February, the second consecutive
increase in loan cure rates. This is an historical pattern with the most significant
"cures" coming in the early delinquency categories. The Mortgage Bankers Association, in reporting
on its National Delinquency Survey, always points to a regular seasonal
increase in short-term delinquencies in the fourth quarter as families are hit
both with the first heating bills of the season and by holiday expenses, then a
downturn in those same figures in the first quarter as household finances get
back on track. The January/February cure
rate improvements noted by LPS were driven almost entirely by FHA and GNMA
As LPS Applied Analytics Senior Vice
President Herb Blecher explained, these cures were not unusual, but rises seen
in loans three-to-five months delinquent and foreclosure-initiated categories
were unexpected. "What stood out in
this month's data was where that increase was centered. February's rise in
cures was driven almost entirely by FHA loans, representing a 29 percent
increase from January, and likely driven by revived modification activity
related to the revisions to the FHA's Loss Mitigation Home Retention options
released late last year.
"We also looked at loan
modification data released in the Office of the Comptroller of the Currency's
Mortgage Metrics report (aggregated by LPS) and saw that, after two years of
steady decline, modification volume increased substantially in the last half of
2012, with about 280,000 modifications occurring during that time,"
Blecher continued. "The majority of the increases in both Q3 and Q4
occurred in proprietary modifications as opposed to through the Home Affordable
Modification Program. Given the current FHA activity, along with the FHFA's
recent announcement of its Streamlined Modification Initiative, we could see
continued strength in modification volumes in the future."
Modifications made in 2010 and later
continue to perform at rates much better than those done even one year earlier.
The U.S. loan delinquency rate fell by 3.16
percent from January to February to 6.80 percent while the pre-sale inventory
rate was down nearly one percent to 3.38 percent. More recent vintage loans with their tighter
underwriting standards continue to perform well with loans written in each year
after 2007 performing better than loans written in the preceding year. This is true even for the highest quality
loans but does not hold true for the more recent loans written for FHA which is
supporting the market for borrowers with lower credit scores and higher loan to
The states with the highest percentage
of non-current loans continue to be Florida, New Jersey, Mississippi, Nevada,
and New York.