October 2016 - Changing of the Guard

TheMReport — News and strategies for the evolving mortgage marketplace.

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56 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T ANALYTICS THE LATEST Millennial Homeowners Utilizing Home Equity for Extra Funds Older millennials are more likely than baby boomers to leverage their home equity for cash and to view their homes as investment properties. O lder millennials (ages 30 to 34) who own a home are likely to tap into their home equity when they need extra cash, according to a survey from Dis - cover Home Equity Loans. In fact, that age cohort was twice as likely as baby boomers, ages 55 to 64, to take out a home equity loan, according to the sur - vey of 1,428 adults in March 2016 conducted by research firm Toluna for Discover. The survey found that millenni - als prefer the cheaper home equity loan interest rate (which averaged 4.88 percent for the week ending August 17) or home equity line of credit rate (4.75 percent) over borrowing using a credit card, where the average interest rate is currently 16.1 percent. "Homeowners who have built equity in their homes have the op - portunity to leverage their financial asset to help them pay down debt, update their home or pay for major expenses," said TJ Freeborn, Director of Operations Strategy for Discover Home Equity Loans. "Home equity loans are a viable option homeowners may want to consider, especially because they of - fer perks like a fixed rate for the life of the loan and the potential for the interest to be tax deductible." Out of the 64 percent of older millennials who own a home, 51 percent of them used to have a home equity loan, compared to just 26 percent of baby boomers who own a home, according to the survey. Older millennial homeown - ers were three times more likely than baby boomers to tap home equity when they need emergency cash (42 percent compared to 14 percent). The survey also showed that older millennials were more likely than baby boomers to use their home as a financial asset by sell - ing it to make money (27 percent compared to 13 percent), and older millennials were also more likely than baby boomers to view their homes as an investment property (25 percent compared to 7 percent). Refi Boom, Compliance Keeping Loan Defects Low First American's loan defect indices for refinance and purchase originations are down significantly from last year. T he recent spike in mortgage refinances driven by near his- torically low mortgage rates has benefited the loan pro- duction process by the lowering the frequency of defects, fraudu- lence, and misrepresentation in the information submitted in mortgage loan applications, ac- cording to data released by First American Financial Corpora- tion at the end of August. The First American Loan Application Defect Index for July 2016 reported a decline of 2.8 per - cent over the month in July and a drop of 16.7 percent over the year. The Defect Index in July was down by 31.4 percent from its risk peak, reached in October 2013, according to First American. "The Defect Index continues to improve as the share of refinance activity in the market remains strong. According to the latest MBA mort - gage applications survey, the refinance share of mortgage appli- cations remains above 60 percent. The housing market continues to benefit from historically low mort- gage rates, which are driving lower defect-risk refinance activity," said Mark Fleming, Chief Economist at First American. "The average rate for a 30-year, fixed-rate mortgage fell in July to 3.44 percent from 3.57 percent in June. Other than between October 2012 and January 2013, this marks the lowest mort - gage rates have been since Freddie Mac began tracking mortgage rates in 1971. To the extent that lower defect-risk refinance applications continue to occupy a large share of the mortgage market, the overall index will benefit." For refinance transactions, the Defect Index declined by 1.7 percent from June to July and 18.1 percent from July 2015 to July 2016. For purchase transactions, the Defect Index was down 1.3 percent over the month and 13.2 percent over the year in July. These two Defect Indices are also way down from their peaks reached in late 2013, albeit at a much higher rate for refinance transactions than purchase transactions (41 percent compared to 24 percent). "The benefits in compliant loan production processes are becoming more clearly evident, particularly for refinance transactions, in the big declines we are observing in loan application and mortgage de - fect risk," Fleming said. "Refinance activity, fueled by historically low mortgage rates, combined with improved loan manufacturing processes are resulting in higher quality loan applications with the lowest level of defects and misrep - resentation that we have seen in recent history." "The benefits in compliant loan production processes are becoming more clearly evident." —Mark Fleming, First American

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