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Mortgages: Tappable equity rose by $260 billion in Q1 2016

Staff Writer |
This month, the Mortgage Monitor leveraged data from the Black Knight Home Price Index to revisit the U.S. equity landscape in light of 48 consecutive months of annual home price appreciation (HPA).

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The Data & Analytics division of Black Knight Financial Services released its latest Mortgage Monitor Report, based on data as of the end of May 2016.

As Black Knight Data & Analytics Executive Vice President Ben Graboske explained, the impact can be observed in terms of both levels of tappable equity available to borrowers as well as the continuing reduction in the number of borrowers who owe more than their homes are worth.

"As we approach the 10-year anniversary of the pre-crisis peak in U.S. housing prices, we're just under 3 percent off that June 2006 peak nationally, and 23 states have already passed their 2006 peaks," said Graboske.

"The result is that equity levels are rising nationwide for the most part. In Q1 2016, 425,000 borrowers who had been underwater on their mortgages regained equity, bringing the national negative equity rate down to just 5.6 percent.

"That's a far cry from the nearly 29 percent of borrowers who were underwater at the end of 2012, but still about five times as many as in 2004. The first quarter also saw tappable equity grow by $260 billion - a six percent increase in just the first three months of the year.

"There are now 38 million borrowers who have at least 20 percent equity in their homes, with an average of $116,000 in tappable equity per borrower. It seems borrowers are still being prudent when it comes to drawing upon that equity, though.

"Just $20 billion in equity was tapped via cash-out refinances in Q1 2016 - roughly one-half of one percent of total available equity. Even so, cash-outs still accounted for some 42 percent of all refinance activity in Q1 2016."

Black Knight also merged credit bureau data with its McDash loan-level mortgage database to examine performance metrics on mortgage originations going to borrowers with student loan debt, finding that the share of such originations has risen in recent years.

In fact, the share of originations with student loan debt hit a new high in 2014 (the most recent full year's data available) at 19 percent of all originations. Fifteen percent of all active mortgage holders have some level of student loan debt, representing an increase of over 40 percent over the past 10 years.

The data shows that overall non-current rates are 38 percent higher for borrowers carrying student loan debt; however, when compared to mortgages with similar credit scores, the disparity becomes decidedly less pronounced. Fewer than one percent of all active mortgages belong to borrowers who are 90 or more days past due on their student loan debt.

However, it should be noted that borrowers severely delinquent on student loan debts are five times more likely to be delinquent on their mortgages than those who are current on student loan debt, and nearly six times more likely to be delinquent than the average borrower without any student loan debt at all.

Finally, Black Knight looked at recent trends with regard to mortgage prepayment rates (historically a good indicator of refinance activity) and found that Ginnie Mae prepays (FHA, VA, etc.) have outpaced all other investor categories in 19 of the past 24 months.

Likewise, post-2013, when FHA instituted its "mortgage insurance for life" policy on loans with greater than 90 percent loan-to-value at origination, far fewer borrowers have been refinancing their FHA/VA into another FHA/VA product, with over 50 percent choosing GSE or portfolio products instead.

Also, while prepayments on fixed-rate mortgages are down 4 percent year-over-year, and have seen annual declines in each of the last seven months, prepays on adjustable-rate mortgages (ARMs) are actually up 8 percent over the same period, and have seen annual increases for each of the past 18 months.

At the same time, the ARM share of originations has dropped along with interest rates in 2016, falling to the lowest level in nearly three years.

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