Monday, August 07, 2017

Black Knight Mortgage Monitor: "Low-Down-Payment Purchase Lending at Seven-Year High"

by Bill McBride on 8/07/2017 08:01:00 AM

Black Knight Financial Services (BKFS) released their Mortgage Monitor report for June today. According to BKFS, 3.80% of mortgages were delinquent in June, down from 4.31% in June 2016. BKFS also reported that 0.81% of mortgages were in the foreclosure process, down from 1.10% a year ago.

This gives a total of 4.61% delinquent or in foreclosure.

Press Release: Black Knight’s Mortgage Monitor: Low-Down-Payment Purchase Lending at Seven-Year High, Largely a Product of Overall Purchase Market Growth

Today, the Data & Analytics division of Black Knight Financial Services, Inc. released its latest Mortgage Monitor Report, based on data as of the end of June 2017. This month, in light of much commentary and speculation on the re-emergence of purchase loans with loan-to-value (LTV) ratios of 97 percent or higher, Black Knight looked at low-down-payment purchase lending trends, gaining some early insight into the performance of these products. As Black Knight Data & Analytics Executive Vice President Ben Graboske explained, in general, low-down-payment purchases are on the rise, but this does not necessarily mean a return to the practices – and risks – of the past.

“Over the past 12 months, approximately 1.5 million borrowers have purchased homes using less-than-10-percent down payments,” said Graboske. “That is close to a seven-year high in low-down-payment purchase volumes. The increase is primarily a function of the overall growth in purchase lending, but, after nearly four consecutive years of declines, low-down-payment loans have ticked upwards in market share over the past 18 months as well. In fact, they now account for nearly 40 percent of all purchase lending. The bulk of the growth has not been among the various three-percent-or-less down payment programs that have been reintroduced in the last few years, but rather in five-to-nine- percent down payment mortgages. This segment grew at twice the rate of the overall purchase market in late 2016, whereas lending with down payments of less than five percent grew at about the market average.

“However, low-down-payment purchase lending today has a much different risk profile than it did back in 2005-2006 during the run-up to the financial crisis. At that time, half of all low-down-payment purchase originations involved ‘piggyback’ second liens, as opposed to a single high-LTV first lien mortgage. It’s also worth noting that while the total share of purchase lending going to borrowers putting less than 10 percent down was relatively similar then to what we see today, today’s low-down-payment mortgage products and secondary risk characteristics are markedly different. In the pre-crisis years, a large proportion of low-down-payment loans were more risky adjustable rate mortgages (ARMs). In contrast, ARMs are virtually nonexistent today among high-LTV loans. Perhaps the most telling difference is that borrowers using these programs today have average credit scores roughly 50 points higher than those approved for high-LTV purchase loans in 2004-2007. Among GSE loans with down payments under five percent, average credit scores are 60 points higher today.”
emphasis added
BKFS Click on graph for larger image.

This graph from Black Knight shows the foreclosure rate over time.

From Black Knight:
• At the current rate of improvement, the foreclosure rate will fall to pre-crisis (2000-2006) levels in the summer of 2018 – hitting the lowest level since the turn of the century by mid-2019

• However, based on current improvement rates, even when foreclosure volumes normalize there will still be over 70K excess aged foreclosures

• Though the pristine nature of recent originations will have reduced both inflow and overall volumes, it will be this excess backlog keeping foreclosure volumes near historic norms

• It will take an additional three years (mid-2021) for that backlog to normalize at the national level, though some states will still be dealing with residual foreclosures from the crisis years

• Returning to New York, at the current rate of recovery the foreclosure rate won’t normalize until 2021, and it will be 2025 before the backlog of aged foreclosures works its way through the pipeline
There is much more in the mortgage monitor.