Black Knight’s April mortgage data: Over 40 percent of modified loans facing resets are underwater; Interest rate concerns drive increase in ARM prepays

Black Knight’s April Mortgage Data: Over 40 Percent of Modified Loans Facing Resets Are Underwater; Interest Rate Concerns Drive Increase in ARM Prepays
– Nearly 2 million loan modifications are facing interest rate resets; 40 percent are underwater
– Over 10 percent of active loans are in “near negative equity” positions, with 9 percent equity or less
– ARMs with interest rates below 6 percent are prepaying at faster speed than fixed mortgages
– Gap between judicial and non-judicial states’ pipeline ratios lowest since at least 2005

JACKSONVILLE, FL (June 2, 2014) — Today, the Data and Analytics division of Black Knight Financial Services released its latest Mortgage Monitor Report, looking at data as of the end of April 2014. An analysis of mortgage performance data showed that, as of April, there were approximately 2 million modified mortgages facing interest rate resets. Furthermore, more than 40 percent of those loan modifications are currently underwater.

“We have seen a continual reduction in the number of underwater borrowers at the national level for some time now, but modified loans show a different picture,” said Kostya Gradushy, Black Knight’s manager of Loan Data and Customer Analytics. “While the national negative equity rate as of April stands at 9.4 percent of active mortgages, the share of underwater modified loans facing interest rate resets is much higher — over 40 percent. In addition, another 18 percent of modified borrowers have 9 percent equity or less in their homes. Given that the data has shown quite clearly that equity — or the lack thereof — is one of the primary drivers of mortgage defaults, these resets may indeed pose an increased risk in the years ahead.

“From a broader perspective, it’s also important to note that more than one of every 10 borrowers is in a ‘near negative equity’ position, meaning the borrower has less than 10 percent equity in his or her home. This is particularly pronounced in New Mexico and Southern states. At a local level — and we look at both mortgage performance and Home Price Index (HPI) data down to ZIP code granularity — such slim margins in equity can have a significant effect on overall negative equity levels with even slight variations in HPI. So, while the overall situation for underwater borrowers has improved significantly, there are still areas in the country where borrowers are hovering at the edges.”

Black Knight also found that mortgage prepayment rates (historically a good indicator of refinance activity) increased for the second consecutive month as interest rates have stayed low. However, the data also showed that Adjustable Rate Mortgages (ARMs) with notes below 6 percent were prepaying at significantly higher speeds than their fixed-rate mortgage counterparts. This suggests that concerns about rising interest rates persist among the borrower population, despite the recent pullback in 30-year conforming rates.

Finally, as foreclosure sales (completions) increased in both judicial and non-judicial states — though the increase was larger in the former than the latter — Black Knight observed the gap between judicial and non-judicial pipeline ratios (ratio of loans 90 or more days past due or in foreclosure to the current rate of foreclosure completions) had narrowed to its lowest point since at least 2005. The judicial states’ pipeline ratio now stands at 52, as compared to its high of 118 months back in 2011. In contrast, the non-judicial states’ pipeline ratio at that time was 33 months — it has now increased to 48, its highest point on record.

As was reported in Black Knight’s most recent First Look release, other key results include:

Total U.S. loan delinquency rate: 5.62%

Month-over-month change in delinquency rate: 1.84%

Total U.S. foreclosure pre-sale inventory rate: 2.02%

Month-over-month change in foreclosure pre-sale inventory rate: -5.00%

States with highest percentage of non-current* loans: MS, NJ, FL, NY, LA

States with the lowest percentage of non-current* loans: MT, AK, CO, SD, ND

States with highest percentage of seriously delinquent* loans: MS, NV, RI, AL, MA


*Non-current totals combine foreclosures and delinquencies as a percent of active loans in that state.

*Seriously delinquent loans are those past-due 90 days or more.

Totals are extrapolated based on Black Knight Financial Services’ loan-level database of mortgage assets.

About the Mortgage Monitor
The Data and Analytics division of Black Knight Financial Services manages the nation’s leading repository of loan-level residential mortgage data and performance information on nearly 40 million loans across the spectrum of credit products. The company’s research experts carefully analyze this data to produce a summary supplemented by dozens of charts and graphs that reflect trend and point-in-time observations for the monthly Mortgage Monitor Report. To review the full report, visit:


About Black Knight Financial Services, LLC

Black Knight Financial Services, a Fidelity National Financial (NYSE:FNF) company, is the mortgage and finance industries’ leading provider of integrated technology, data and analytics solutions. Comprised of technology offerings from the union of LPS and ServiceLink, Black Knight Financial Services offers leading software systems; data and analytics offerings; and information solutions that facilitate and automate many of the business processes across the mortgage life cycle.


Black Knight Financial Services helps clients in the mortgage industry and beyond achieve their strategic goals, realize greater success and better serve their customers by delivering best-in-class technology, services and insight with a relentless commitment to excellence, innovation, integrity and leadership. For more information on Black Knight Financial Services, please visit


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