Monthly mortgage originations dropped to the lowest level in at least 14 years, according to Black Knight’s latest Mortgage Monitor. However, Herb Blecher, senior vice president of Black Knight’s Data and Analytics division, pointed out that real estate sales have remained relatively steady, buoyed by a substantial number of cash transactions. In January, origination volume declined to its lowest point since 2008, with prepayment speeds pointing to further drops in refinance-related originations.
Black Knight also examined the impact of the implementation of the Consumer Financial Protection Bureau’s (CFPB) new rules in January and observed a sharp shift in the timing of foreclosure starts. As the CFPB rules dictate that foreclosure cannot begin until after 120 days of delinquency, the data showed foreclosure starts at the 90-day mark have all but ceased, while fourth-month delinquency starts have risen over 100 percent since December.
At the same time, foreclosure sales hit the lowest levels since 2007. With fewer loans in the foreclosure process, these numbers will continue to decline, but the result has been an increase in pipeline rations (the time necessary to clear through the backlog of loans either seriously delinquent or in foreclosure at the current rate of foreclosure sales.) This has been most pronounced over the last several months.
“February’s data showed the continued trend of declining origination activity we’ve been observing since mid-2013, with monthly originations falling to their lowest recorded point since at least 2000,” Blecher said. “In spite of this decline, residential real estate sales have remained strong due at least in part to investor activity and the fact that cash sales account for almost half of all transactions. In addition, while total transaction levels were flat on a year-over-year basis, traditional (or ‘non-distressed’) sales were up almost 15 percent from last year as the share of distressed transactions continues to decrease. Credit standards have shown little sign of easing — only about 30 percent of 2013 loans went to borrowers with credit scores below 720 — which indicates that significant opportunity to expand mortgage origination activity is available, if risk appetites allow.”
As the inventory of distressed loans continued to resolve during 2013, Blecher said loan modification activity also declined significantly, ending the year with near post-crisis lows.
However, new changes to FHA’s Home Affordable Modification Program (HAMP) have increased such activity in the first months of this year.
“We continue to see that as industry modification efforts have matured, including offering more effective modification types (including HAMP’s interest rate reductions), far fewer borrowers are experiencing re-defaults than in the early years post-crisis,” Blecher noted. “Of course, more than 95 percent of the roughly 2.5 million interest rate reduction modifications still face rate resets, with many of these set to begin adjusting this fall. As these are controlled resets, we do not expect drastic changes in monthly mortgage payments at first, but will monitor these loans closely to assess the level of risk. We do see that, even after modification, borrower equity continues to play a significant role, with re-default rates approximately 30 percent higher for underwater borrowers.”