Home Equity Lines of Credit or HELOCs are one area
of focus of the July Mortgage Monitor
issued by Black Knight Financial Services on Tuesday. The company said there is still concern about
possible payment shock for homeowners with HELOCS as the millions put in place
during the housing boom reset and begin to amortize.
Black Knight estimates that at least 2.5 million
borrowers face these resets over the next three years. At that point the period during which
borrowers can draw down on their home equity through these loans will end and
the loans will convert from an interest only payment schedule to a fully
amortizing one. The average increase in
payments is estimated at $250 per month.
According
to Kostya Gradushy, Black Knight's manager of Research and Analytics, this
average could increase if homeowners continue to draw on their HELOCS until
they reset. "Black Knight's analysis of
outstanding HELOCs that have yet to reset is based upon current utilization
ratios," said Gradushy. "Currently, borrowers whose HELOCs will reset over the
next three years are utilizing just under 60 percent of their available credit.
Further draws on these lines - for those that have not been locked - could
result in 'payment shock' after they are reset that is even higher than the
national average of $250 per month. Looking further down the road, HELOCs not
likely to reset until 2019 are
exhibiting even lower utilization ratios - about 40 percent of available
credit. Upon reset, those borrowers are currently facing average monthly
increases of $200. Should their drawing pattern match that of older vintages,
we could be looking at a significantly higher risk of 'payment shock' for this
segment."
Black
Knight's preview of Mortgage Monitor
delinquency data, released last week, showed a general downward trend in
delinquencies and foreclosure activity with the delinquency rate down 1.13
percent month-over-month and the foreclosure inventory dropping by 1.85
percent. The full Monitor data released today also showed continued improvement in
new problem loans. At a rate of 0.6
percent of all active loans, these new delinquencies are now firmly back to
2005-2006 levels.
The pattern of dropping rates of new
delinquencies is also being observed in loans other than first mortgages. Rates of new problem loans among HELOCs and
other junior liens are also at multi-year lows
"Roll rates" (the number of loans
that shift from current into progressively more delinquent statuses) have been
improving over the long term across all categories. Black Knight has observed
roll rates increasing on loans shifting from 60 to 90 days delinquent and from
90 days to foreclosure over the last four months. It should be noted, however,
that nearly 75 percent of 90-day defaults and almost 80 percent of foreclosure
starts are from loans originated in 2008 and earlier.
Gradushy
said Black Knight also looked at bank home retention activity and found that
current levels have declined along with delinquencies and foreclosures. However they also found that retention
activity is still high relative to current levels of distressed loans. "On
a state-by-state basis, home retention activity does not always correlate with
the amount of distressed inventory. Such activity is much higher, for example,
in California - where nearly 12 percent of distressed loans were the focus of
some form of retention efforts - than in any of the other states in the top
five ranked by distressed inventory. In contrast, in the other four states in
the top five (Fla., N.Y., N.J. and Ill.) just over six percent of loans on average
saw home retention actions," Gradushy said.
