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TH E M R EP O RT | 39 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 When Fintech Isn't Enough Despite an increase in fintech lending, year- over-year originations recorded a decline. O nline loan applications are rising with 38 percent of all unsecured per- sonal loan balances being driven by fintech loans, according to the latest TransUnion Q 4 2018 Industry Insights Report. Despite this overall rise in lending led by fintech, the report revealed that the mortgage market continued to soften as delinquencies declined. Despite the rise in overall consumer borrowing and the increased use of fintech, home mortgages have cooled slightly, the report noted. Data revealed that of the top 20 metropolitan statisti- cal areas (MSAs), those with an average new account balance of over $300,000 saw a decline of 10 percent in year-over-year origina- tions. On the other hand, those with an average new account balance of less than $300,000 saw growth of 2 percent in year-over- year originations. Average new mortgage account balances dropped to $227,376, from $228,563 in Q 4 2017. "The decrease we're seeing in new account balances could be due to a number of factors, the largest of which may be a change in the mix of mortgage origina- tions from high priced MSAs to low priced MSAs. Of the top 20 MSAs, those with an average new account balance of over $270,000 had a decline of 17 percent in year-over-year originations, while those with an average new ac- count balance of less than $270,000 saw only a 5 percent decline in year-over-year originations," said Joe Mellman, SVP and mortgage business leader at TransUnion. Though mortgage originations continue to remain low relative to past years, the report indicated a slight increase in lending activ- ity to subprime borrowers. An increase of 2 percent was recorded in originations to subprime borrowers on a year-over-year basis—a growth trend now ob- served since Q1 2018. The average debt per borrower was $206,922. However, Mellman pointed out that as the mortgage market tightens, "lenders are expressing only slight interest in subprime lending—originations to subprime consumers still represent less than 4 percent of total originations." The report indicated that serious mortgage delinquencies continued to decline. The serious delinquency rate for Q 4 2018 was 1.66 percent down from 1.86 percent during the same time last year. Additionally, 15 of the 20 largest MSAs experi- enced double-digit year-over-year percentage declines. "Only three MSAs, Houston, Miami, and Tampa, experienced an uptick in year-over-year delinquencies. This was expected, as the comparison point is Q 4 2017, a quarter when those MSAs experienced an artificially low delinquency rate due to natural disaster forbearance programs," Mellman said. Per the Q 4 2018 IIR Mortgage Loan Summary, serious mortgage delinquency rates have continued to remain low. The serious delin- quency rate for Q 4 2018 was 1.66 percent, down from 1.86 percent at the same time last year. In ad- dition, 15 of the 20 largest MSAs experienced double-digit year- over-year percentage declines. The Rise of Cash-Out Refis This resurgence is different from the spike observed just before the Great Recession. A ccording to Arthur Jobe, Senior Profession- al Product Management and Rental Property Solutions at CoreLogic, the resur- gence in cash-out refinances is not a cause of concern. In his blog titled "A Bigger Slice of a Smaller Pie: Why We Shouldn't Worry About the Rising Share of Cash- Out Refinance Loans," Jobe points that while the spike in the share of cash-out refinances in 2017 and 2018 may be similar to what was observed just before the Great Recession, the credit quality, dollar volume, and borrower characteristics of these loans could mean that there is less cause for concern in the current housing market. According to CoreLogic research, over the past two years, the share of refinances jumped to 50 percent in 2017 and then again to 61 percent in 2018, the highest since 2006. "While these numbers might appear alarming and similar to the trends prior to the financial crisis, there's no need to worry, as the volume of cash-out refinance loans decreased in both years," Jobe said. Jobe also indicated that the increase in the share of cash-out refinance loans is not a byprod- uct of an increase in cash-out originations. This is the result of a decrease in interest rate or term reduction originations. In 2017, when interest rates increased, the number of borrowers successfully seeking an interest rate or term reduction loan recorded a drop by nearly 50 percent. On the oth- er hand, the volume of cash loans decreased by just over 8 percent, causing the share of cash-out loans to spike despite the decrease in volume. Addressing home price growth, Jobe indicated that the volume of cash-out refinance loans did not reflect a sharp decline on account of the home-equity wealth created by value appre- ciation. Year- over-year growth dropped from 33 percent in 2015 to 20 percent in 2016, even amidst further reduced interest rates. This suggests that the "pool of borrowers interested in refinancing was beginning to diminish. Rising interest rates in 2017 cooled the market further, and overall refinance volume dropped 35 percent that year." Jobe stated that the decline in cash-out refinance loan volume at a limited 8 percent indicate that continued growth in home prices and relatively low interest rates provided a cushion for the cash- out refinance market by offering some continued opportunity and incentive. According to CoreLogic research, over the past two years, the share of refinances jumped to 50 percent in 2017 and then again to 61 percent in 2018, the highest since 2006.