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Monday, October 07, 2013

LPS: Mortgage Delinquencies Decline in August, Prepayment Activity Declines Sharply

by Calculated Risk on 10/07/2013 08:48:00 AM

LPS released their Mortgage Monitor report for August today. According to LPS, 6.20% of mortgages were delinquent in August, down from 6.41% in July. LPS reports that 2.66% of mortgages were in the foreclosure process, down from 4.04% in August 2012.

This gives a total of 9.23% delinquent or in foreclosure. It breaks down as:

• 1,836,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,288,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 1,341,000 loans in foreclosure process.

For a total of ​​4,465,000 loans delinquent or in foreclosure in August. This is down from 5,450,000 in August 2012.

LPS has found that prepayment activity declined sharply (no surprise with higher rates). LPS also thinks we might see a pickup in home equity borrowing:

The August Mortgage Monitor report released by Lender Processing Services 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.”
There is much more in the mortgage monitor.