by Calculated Risk on 10/03/2016 08:00:00 AM

Black Knight Financial Services (BKFS) released their Mortgage Monitor report for August today. According to BKFS, 4.24% of mortgages were delinquent in August, down from 4.87% in August 2015. BKFS also reported that 1.04% of mortgages were in the foreclosure process, down from 1.48% a year ago.

This gives a total of 5.28% delinquent or in foreclosure.

Press Release: Black Knight’s Mortgage Monitor: 42 Percent of Q2 2016 Refinances Were Cash-Out Transactions, Largest Quarterly Sum of Equity Tapped Since 2009

Today, the Data & Analytics division of Black Knight Financial Services, Inc. released its latest Mortgage Monitor Report, based on data as of the end of August 2016. This month, Black Knight took a close look at mortgage refinance activity through the first half of 2016. As Black Knight Data & Analytics Executive Vice President Ben Graboske explained, borrowers are continuing the trend of drawing upon growing equity in their homes, though at nowhere near the levels at which they had pre-crisis.

“The roughly 350,000 cash-out refinances in Q2 2016 accounted for 42 percent of all refinances in the quarter, and marked the ninth consecutive quarterly increase in cash-out lending, not only by count, but also by the amount of equity tapped,” said Graboske. “At $22.6 billion, that works out to approximately $65,000 in equity tapped per borrower. While that per-borrower number is slightly down from Q1 2016 – but $6,000 higher than one year ago – the $22.6 billion total is the largest equity sum tapped since Q2 2009. Just to put that into perspective, though, it’s still a nearly 80 percent lower equity draw than at the peak in Q3 2005. And, given that we saw over $550 billion in tappable equity growth last year alone, this equates to borrowers only tapping into 15 percent of the growth in equity over the past 12 months, without even touching the $4.5 trillion balance in tappable equity available. All in all, it’s clear that cash-outs are helping to prop up the refinance market – their 42 percent share is up from only 30 percent in early 2015 when interest rates had also dropped. What’s more, refi volumes are down from 2015 – at least through the second quarter – but while overall they’re down nine percent from Q1 2015, rate/term refinances are actually down 25 percent over that same period.

“Today’s cash-out refinance borrowers continue to present a relatively low risk profile, historically speaking,” Graboske continued. “The average credit score of 748 among Q2 2016 cash-out refinance borrowers is 67 points higher than that of the low point recorded in Q3 2006, and is in fact nearly 60 points higher than the overall average credit score from 2005 through 2007. In addition, post-cash-out loan-to-value ratios remain low. At 66 percent, it’s slightly higher than in Q1 2016, but it’s the second lowest quarterly average recorded in over 11 years. This is nearly six percent below the 2005-2007 average and 10 percent below the highs recorded in late 2008. In addition, while not specific to cash-out refinancing, we continue to see prudent behavior on the part of borrowers. Some 40 percent of Q2 2016 rate/term refinances involved the borrower reducing their loan term, the highest share of term reductions since late 2013/early 2014.”

This month, Black Knight also found that the remaining inventory of loans in active foreclosure is declining at the fastest rate since 2014, and the rate of reduction has been accelerating throughout 2016.
emphasis added

Click on graph for larger image.

This graph from Black Knight shows first lien Cash-out Refinances.

From Black Knight:

• The roughly 350,000 cashout refinances in Q2 2016 accounted for 42 percent of all refinances in the quarter, and marked the ninth consecutive quarterly increase in cash-out lending in terms of both count and amount of equity tapped

• Cash-outs are helping to prop up the refinance market: their 42 percent share is up from only 30 percent in early 2015 as interest rates dropped; though overall refi volumes are down nine percent from Q1 2015, rate/term refinances are actually down 25 percent

• The $22.6 billion tapped via cash-out refinances in Q2 is the largest equity sum tapped since Q2 2009; that’s still nearly an 80 percent lower equity draw than at the peak in Q3 2005

• This works out to approximately $65,000 in equity tapped per borrower, which is down slightly from Q1 but $6,000 higher than one year ago

The second graph shows the credit scores and Loan-to-value (LTV) for cash-out refinance activity. From Black Knight:

• Historically speaking, today’s cash-out refinance borrowers continue to present a relatively low risk profile

• The average credit score of 748 among Q2 cash-out refinance borrowers is 67 points higher than that of the low point recorded in Q3 of 2006, and is nearly 60 points higher than the overall average credit score from 2005 through 2007

• Post-cash-out average loan-to-value ratios (LTVs) remain low at 66 percent; this is slightly higher than in Q1, but is the second lowest quarterly average recorded in over 11 years - nearly six percent below the 2005-2007 average and 10 percent below the highs recorded in late 2008

Cash-out refinance activity is picking up, but the level is still fairly low - and the quality of the loans (and LTV) is good.  There is much more in the mortgage monitor.