MReport Jan 2019

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TH E M R EP O RT | 43 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST ORIGINATION Missed Opportunity Will mortgage holders who held off refinancing come to regret it? O nly 1.86 million mort- gage holders had an interest rate incentive to refinance indicating a 56 percent decrease from the start of the year according to Black Knight's Mortgage Monitor report. According to the report an estimated 6.5 million homeowners had missed their opportunity to refinance their mortgages due to rising rates, for an aggregate of $1.5 billion in lost savings per month. "On average, these homeown- ers had a 22-month window to refinance. All told, that amounts to an aggregate of $1.5 billion in lost savings every month for these borrowers," said Ben Graboske, EVP of Black Knight's Data and Analytics Division. "This year alone, 2.2 million borrowers had the opportunity to see a 0.75 percent reduction on their first mortgage rates but did not take ad- vantage of the reduced rates before increases to the 30-year fixed rate removed their incentive." Homebuyers too were facing an affordability challenge with the median income to make the monthly payment on the average-priced home rising to 23.6 percent compared to the long-term benchmark of 25.1 percent. "The monthly principal and interest payment needed to purchase the average-priced home has seen a $190 per month increase since the beginning of 2018, an 18 percent jump," Graboske said. Additionally, at the start of 2018, only two states, California and Hawaii, were less affordable than their long-term norms. But by October, the num- ber had risen to 10 states passing that benchmark and another six were within 1 percent of long-term affordability levels. The report also indicated that the national inventory of loans in active foreclosure fell to pre-reces- sion levels for the first time since the financial crisis in September. When today's foreclosure rates were taken into account along with "the fact that there are 16 percent more active mortgages today than the 2000-2005 aver- age, relatively speaking foreclosure inventory is actually 40,800 below pre-recession norms." As a result, if the current rate of foreclosure reduction continued, active foreclo- sure inventory would hit a record low in September 2019 with fewer than 200,000 cases nationwide. "On average, these homeowners had a 22-month window to refinance. All told, that amounts to an aggregate of $1.5 billion in lost savings every month for these borrowers," — Ben Graboske, EVP, Black Knight's Data and Analytics Division A Resurgence of ARMs CoreLogic examines the popularity of this defining loan product. A djustable-rate mortgages (ARMs) may have been a defin- ing product before the housing bubble. However, the average mortgage rates on 5/1 adjustable-rate mortgages (ARMs) as well as 30-year fixed-rate mortgages (FRMs) have been rising. According to CoreLogic, these products have seen a jump of 70 basis points from August 2017 to August 2018, alone. "ARMs were popular prior to the housing bubble burst and its share of the dollar volume of conventional loan origina- tions dropped to a staggering 4 percent in early-2009 from more than 50 percent during mid-2005," Archana Pradhan, Senior Professional Economist at CoreLogic wrote on its blog. Though the rates of ARMs have fluctuated from 8-18 percent, increas- ing and decreasing in tune to the rise and decline of FRMs, the overall ARM share remained stable from last year despite the rise in the mortgage interest rate, the report indicated. The analysis also found that ARMs accounted for 15 percent of the dollar volume of conventional single-family mortgage origina- tions as of August 2018. It is worth noting that the national share of ARMs had considerable variations across locations and loan sizes. The report found that ARMs are common in expensive areas and among homebuyers borrowing large-balance mortgage loans than for those with smaller loans. The rate on 30-year FRMs surged to 4.55 in August 2018 from 3.88 in August 2017. Similarly, the rate on 5/1 ARMs rose to 3.87 in August 2018 from 3.15 in August 2017. Buyers perceive ARMs to be a more feasible option on account of its lower initial interest rate, especially for bigger loans compared to FRMs, resulting in more significant monthly savings. Pradhan noted the strong relationship between the average sale price and the ARM share, wherein it is higher for metros with a higher average sale price. San Jose metro had the highest average sale price and the largest share of ARMs out of all conventional mortgage originations in 2018. Metro areas used in the CoreLogic analysis are Core Based Statistical Areas. At a stable rate since 2017, ARMs comprised 51 percent of the dollar volume among mortgages of more than $1 million originat- ed during August 2018. The ARM share dropped by 1 percentage point from August 2017 and is currently at 21 percent among mort- gages in the $400,001-$1 million range, and remains unchanged from last year among mortgages in the $200,001-$400,000 range at 7 percent in August 2018. The report reflects on the correlation between the demand for ARMs and FRM rates and the difference in their initial interest rates. For homeowners, relatively low FRM rates continue to be a great option despite the rate having increased a year ago. The analysis also cites higher default rates on ARMs during the crash, rigid underwriting requirement of lenders in recent years, length- ening periods of expected ownership as the possible reasons for the decrease in ARMs volume. 2019 FIVE STAR CONFERENCE AND EXPO | HYATT REGENCY | DALLAS, TEXAS REGISTER AT FIVESTARCONFERENCE.COM SAVE THE DATE SEPTEMBER 23-25, 2019 Now in its 16th year, the Five Star Conference is a premier mortgage and real estate event attended by thousands of industry professionals. Don't miss out on the lowest registration prices of the season—act today to reserve your opportunity to contribute, network, and succeed. For more information, please call 214.525.6700 or email HOSTING SPONSOR LEADERSHIP SPONSORS STAR SPONSORS TM

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