Three areas drew the focus of the Lender Processing Services
(LPS) August Mortgage Monitor released today: prepayment activity and
refinance opportunities, home price improvement and home equity potential, and
foreclosure sales and pipeline update.
LPS said that rising mortgage interest rates caused the prepayment rates,
historically a good indicator of refinancing activity to decline sharply in
August. The monthly prepayment rate has dropped by about 30 percent since May to
a 1.40 percent rate in August as interest rates rose 100 basis points over the
While origination overall and originations for refinancing have both
declined with the rise in rates the share of refinancing going to the Home
Affordable Refinance Program (HARP) has increased. In May, the last month for which data is
available, HARP accounted for 30 percent of all refinancing. This was the highest share the program has
captured since its inception with the exception of an anomaly in mid-2012 when secondary
market mechanics allowed lenders to process a backlog of HARP loans.
The rise in rates has shifted about
50 percent of the refinancible population "out of the money" for refinancing.
LPS estimates that nationwide about 5.7 million homes now have what it calls "refinancible
characteristics. In December 2012 it
estimates there were approximately 10 million such loans.
LPS Senior Vice President Herb Blecher said that the decline in existing
loans with interest rates high enough to make refinancing a financially
sensible option could actually translate into opportunity for the home equity loan
and lines of credit market. "While
higher interest rates may certainly have the effect of tamping down refinance
activity, they may actually wind up contributing to a new appetite for home
equity loans among homeowners," he said.
"After bottoming out at the beginning of 2012, home prices are now
at their highest levels since 2009, and borrowers who bought or refinanced
within the last few years are quite likely to have accumulated additional
equity in their homes. Based upon LPS' analysis of historical borrowing
patterns and home value trends, it is possible that we could see an increase in
second-lien borrowing among those who have locked in their first mortgages at
very low rates and who wish to tap their equity without refinancing into a
This month's Mortgage Monitor also looked at foreclosure pipelines at both the
national and state levels. On a
national level the pipeline has continued to clear both as foreclosure starts
decline on the front end and lenders accelerated the pace of foreclosures at
the back end. Still some states still
have huge backlogs and in some cases they are continuing to grow. New York, a judicial state, still has the
largest pipeline ratio based on the very limited volume of current foreclosure
sales in that state, but certain non-judicial states have seen dramatic
increases in the wake of passing foreclosure-related legislation or rulings.
California, for example, has seen its pipeline ratio increase nearly 70 percent
since that state's Homeowners Bill of Rights went into effect at the beginning
of this year and Massachusetts has seen an increase of 136 percent (to 168
months) since a Q2 2012 state Supreme Court ruling slowed the process
As LPS reported in its earlier preview of Monitor data, the U.S. delinquency
rate was down 3.31 percent to 6.20 in August and the foreclosure presale
inventory rates declined by 2.66 percent to 5.74 percent.