LPS’ August Mortgage Monitor: Interest Rate Hikes Shrinking ‘Refinancible’ Population
Home Price Increases Potentially Opening New Home Equity Loan Market
JACKSONVILLE, FL (October 7, 2013) — The August Mortgage Monitor report released by Lender Processing Services (NYSE: LPS) found that prepayment activity (historically a good indicator of mortgage refinance activity) declined sharply in August as mortgage rates continued to rise. In conjunction with those rate increases, a large portion of borrowers has been effectively shifted out of the “refinancible” population. However, at the same time, according to analysis done by LPS, rising home prices and corresponding levels of equity for many borrowers may translate into opportunity for the home equity loan and lines of credit market.
“We have seen prepayments decline by more than 30 percent since May, when mortgage interest rates began climbing approximately 100 basis points to where we are today,” LPS Senior Vice President Herb Blecher said. “As a result, the percentage of borrowers currently in loans with interest rates high enough for refinancing to make fiscal sense has decreased significantly. Over half of borrowers are now ‘out of the money’ with respect to refinancing. In December 2012, the population of potentially refinance-eligible borrowers stood at roughly 10 million. However, refinance activity during that time, along with rising interest rates, have shrunk that pool to just 5.7 million borrowers as of August.
“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,” Blecher continued. “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 higher rate.”
This month’s Mortgage Monitor also looked at foreclosure pipelines at both the national and state levels. Though national pipelines have been steadily decreasing due to both an increase in foreclosure sales and declining foreclosure starts, pressure is still growing or extreme in many states. 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. Likewise, Massachusetts has seen an increase of 136 percent (to 168 months) since a Q2 2012 state Supreme Court ruling slowed the process significantly there.
As reported in LPS’ First Look release, other key results from LPS’ latest Mortgage Monitor report include:
Total U.S. loan delinquency rate: 6.20%
Month-over-month change in delinquency rate: -3.31%
Total U.S. foreclosure presale inventory rate: 2.66%
Month-over-month change in foreclosure presale inventory rate: -5.74%
States with highest percentage of non-current* loans: FL, MS, NJ, NY, ME
States with the lowest percentage of non-current* loans: MT, CO, WY, SD, ND
*Non-current totals combine foreclosures and delinquencies as a percent of active loans in that state.
Totals are extrapolated based on LPS Data & Analytics’ loan-level database of mortgage assets.
To view the Mortgage Monitor Snapshot series, LPS’ video version of the Mortgage Monitor, go to http://www.lpsvcs.com/LPSCorporateInformation/CommunicationCenter/DataReports/Pages/Mortgage-Monitor-Snapshot.aspx
About the Mortgage Monitor
LPS 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 LPS’ monthly Mortgage Monitor Report. To review the full report, visit http://www.lpsvcs.com/LPSCorporateInformation/CommunicationCenter/DataReports/Pages/Mortgage-Monitor.aspx
About Lender Processing Services
LPS (NYSE: LPS) delivers comprehensive technology solutions and services, as well as powerful data and analytics, to the nation’s top mortgage lenders, servicers and investors. As a proven and trusted partner with deep client relationships, LPS offers the only end-to-end suite of solutions that provides major U.S. banks and many federal government agencies the technology and data needed to support mortgage lending and servicing operations, meet unique regulatory and compliance requirements and mitigate risk.
These integrated solutions support origination, servicing, portfolio retention and default servicing. LPS’ servicing solutions include MSP, the industry’s leading loan-servicing platform, which is used to service approximately 50 percent of all U.S. mortgages by dollar volume. The company also provides proprietary data and analytics for the mortgage, real estate and capital markets industries. Lender Processing Services is a Fortune 1000 company headquartered in Jacksonville, Fla. For more information, please visit www.lpsvcs.com.