Monday, April 02, 2018

Black Knight Mortgage Monitor for February

by Bill McBride on 4/02/2018 01:50:00 PM

Black Knight released their Mortgage Monitor report for February today. According to Black Knight, 4.30% of mortgages were delinquent in February, up from 4.21% in February 2017. The increase was primarily due to the hurricanes. Black Knight also reported that 0.65% of mortgages were in the foreclosure process, down from 0.93% a year ago.

This gives a total of 4.95% delinquent or in foreclosure.

Press Release: Black Knight’s Mortgage Monitor: Tappable Equity Sees Greatest Calendar-Year Rise on Record, Increasing $735 Billion in 2017; HELOC Market Share Poised to Rise

Today, the Data & Analytics division of Black Knight, Inc.released its latest Mortgage Monitor Report, based on data as of the end of February 2018. This month, Black Knight revisited the nation’s equity landscape, finding that as home prices continued to increase so has the amount of tappable, or lendable, equity available to Americans with mortgages. Black Knight defines tappable equity as the total amount of equity a homeowner with a mortgage has available to borrow against before reaching a maximum loan-to-value ratio (LTV) of 80 percent. As Black Knight Data & Analytics Executive Vice President Ben Graboske explained, rising home prices have pushed the total amount of such equity to a record high.

“As home prices continued their upward trajectory at the national level, the amount of tappable equity available to homeowners with mortgages continued to rise as well,” said Graboske. “Tappable equity rose by $735 billion over the course of 2017, the largest dollar-value calendar year increase on record. At $5.4 trillion, total tappable equity is also the highest on record and 10 percent above the previous, pre-recession peak in 2005. An estimated $262 billion in tappable equity was withdrawn in 2017 via cash-out refinances and home equity lines of credit (HELOCs), also reaching a new post-recession peak. Still, Americans seem more reserved in tapping their equity than in years past, withdrawing less than 1.25 percent of all tappable equity in Q4 2017 – a four-year low. Of that total, 55 percent was tapped via HELOCs, the lowest such share we’ve seen since the housing recovery began. However, as interest rates rise, it is likely that we will see the HELOC share of equity withdrawals increase as well.

“At the start of 2018, some 55 percent of all tappable equity was held by borrowers with first-lien interest rates below the going 30-year rate. Following the nearly 50 basis points rise in interest rates we’ve seen since the start of the year, that share has ballooned to 75 percent. While rising rates tend to dampen utilization of equity in general, the market is poised for a strong shift toward HELOC utilization, as they allow borrowers to take advantage of growing equity while holding on to historically low first-lien interest rates. Sixty-five percent of total tappable equity – approximately $2.8 trillion – is held by borrowers with credit scores of 760 or higher and first-lien interest rates below today’s prevailing rate, which creates a large pocket of low-risk HELOC candidates.”

The data also showed that risk remains relatively low among cash-out refinance originations as well. The average cash-out refinance borrower in 2017 had an average credit score of 744 (down from 750 in 2016) and pulled $68,000 in equity (up from $64,000) with a resulting loan-to-value ratio (LTV) of 66 percent. Approximately 40 percent of remaining cash-out refinance candidates – those borrowers with both tappable equity and current first-lien rates of 4.5 percent or higher – have credit scores above 760. As borrowers with higher credit scores tend to have higher average equity amounts, approximately 50 percent of all tappable equity among borrowers with first-lien rates of 4.5 percent or higher is held by that group.
emphasis added
BKFS Click on graph for larger image.

This graph from Black Knight shows the Black Knight's estimate of "tappable equity".

From Black Knight:
• 2017 saw the greatest calendar-year rise in lendable/tappable equity on record, increasing by $735 billion over the course of the year

• Tappable equity grew by $78B in Q4, resulting in a 16 percent year-over-year increase in total available equity

• Q4 increased a modest 1.5 percent — not uncommon in the final quarter of the year as home price appreciation slows — and outpaced Q4 gains in 2016 and 2015

• $5.4 trillion in total tappable equity is the highest dollar amount on record and 10 percent above the prior 2005 peak
...
• While rising rates tend to dampen utilization of equity in general, the market is poised for a strong shift toward HELOCs, as they allow borrowers to take advantage of growing equity while holding on to historically low first lien interest rates
There is much more in the mortgage monitor.