Mortgage delinquency rates on the decline
Lender Processing Services’ (LPS’) Mortgage Monitor Report for August was released today, revealing great news for the economy as well as housing – 6.20 percent of mortgages were delinquent in August, falling from 6.41 percent in July, a substantial improvement in a short period. Additionally, 2.66 percent of mortgages were in the foreclosure process, falling from 4.04 percent in August 2012.
As of August, a full 9.23 of mortgages are delinquent or in foreclosure, and while it sounds high (and it is), compared to rates during the peak of the housing crash, this is a marked improvement. Now, there are 1,836,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure. Within that number are 1,288,000 properties that are 90 or more days delinquent, but not in foreclosure. There is a total of 1,341,000 loans in the foreclosure process.
In August 2012, there was a total of 5.45 million homes either delinquent or in foreclosure, but as of August 2013, the number has deflated to 4,465,000.
Prepayment activity also declined
Although delinquency rates are falling, prepayment activity has also taken a downward turn, down more than 30 percent since May 2013, primarily due to rising mortgage interest rates. That said, LPS predicts home equity borrowing may increase in the near future.
The report notes that “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.”
LPS Senior Vice President Herb Blecher notes, “As a result [of declining prepayment activity], 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 added. “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.”
Belcher concludes, “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.”