Mortgage originations in January were at the lowest level in 6 years 2008 Black Knight Financial Services said today and data on prepayment speeds and the remaining universe of "refinancible" mortgages do not bode well for the refinance segment of the market. However, the company's January Mortgage Monitor notes that the home equity market is stirring. Last year was the first year since 2006 in which origination of those loans and lines of credit increased.
Origination volume dropped below 400,000 mortgages during the fourth quarter of 2013 for the first time since 2011 and by the end of the year were at the lowest point since mid-2008 when volume fell to around 300,000. The share of government-backed mortgages has also declined to 83 percent from a peak of 91 percent in 2009.
"In January, we saw origination volume continue to decline to its lowest point since 2008, with prepayment speeds pointing to further drops in refinance-related originations," said Herb Blecher, senior vice president of Black Knight's Data & Analytics division. "Overall originations were down almost 60 percent year-over-year, with HARP volumes (according to the most recent FHFA report) down 70 percent over the same period. These declines are largely tied to the increased mortgage interest rate environment, which is having a significant impact on the number of borrowers with incentive to refinance. A high-level view of this refinancible population shows a decline of about 13 percent just over the last two months.
Blecher said that rising rates are taking away some of the incentive to refinance but also the majority of those who could refinance and take advantage of the record low interest rates have already done so. This is a factor with both regular refinances and those which fit the criteria for refinancing through the Home Affordable Refinance Program (HARP.) "The volume of HARP refinances over the past year has driven this population down to about 700,000 loans in January 2014, as compared to over 2.3 million at the same time last year," he said. "From a geographic perspective, outside of Florida and Nevada, we see the Midwestern states of Illinois, Michigan, Missouri and Ohio have among the highest percentage of HARP eligibility."
Black Knight estimates that a reconfigured HARP that allowed for refinancing loans other than those owned or guaranteed by Fannie Mae or Freddie Mac could add significantly to the refinancable universe. They put this figure at 3 million eligible borrowers.
Despite the decline in originations, home sales remained relatively strong in 2013, up 3.7 percent in December 2013 compared to December 2012 and were up 8.4 percent for the entire year. These home sales, however were increasingly supported by all-cash sales which increased sharply in the fourth quarter to nearly half of sales from about 25 percent during the same period in 2012.
The home equity market, which began to shrink year-over-year in 2007 and declined by 80 percent from the prior year in both 2008 and 2009, increased slightly in 2013 compared to 2012. The increase was modest and volumes of both loans and lines of credit remain about 90 percent below levels in 2006 and even below origination volume in 2010. The equity loan activity is concentrated among "super prime" borrowers who have weighted average credit scores 20 to 40 points higher than for home equity loans originated in 2006.
Loan sizes are also creeping up. First position HELOCS now average $124,000 while second lien lines of credit average $95,000 and second loans $64,000.
Black Knight says the performance of recent vintages of HELOCs is "pristine." Delinquencies at six months are consistently at 0.1 percent for those loans origination in 2009 and later, compared to a 2.2 percent delinquency rate six months after origination for those loans originated in 2006.
The company cautions that lenders should watch those earlier loans which are now in the amortizing stage. New problem loans of this vintage are up 27 percent year-over-year as of January.