Black Knight: Servicer Retention Rates Fall in Q3 Despite 3-Year High in Refinance Volumes

Black Knight, Jacksonville, Fla., said after hitting an 18-year low in Q4 2018, refinance lending has nearly doubled (+94%) over the past three quarters.

The company’s monthly Mortgage Monitor report said rate/term refinance lending–business that is typically easier for lenders/servicers to retain–is five times where it was a year ago, driven by recent vintage borrowers seeking to lower their interest rates.

The report said cash-out lending has risen a modest 24% since Q4 2018 but still made up 52% of Q3 refinances, with homeowners withdrawing more than $36 billion via cash-out refinances, the highest amount in nearly 12 years. Despite a surge in refinance lending, retention rates dropped in the third quarter, with just 22% of borrowers being retained in portfolio post-refinance.

Black Knight said rate/term refinance retention fell to 26% in the third quarter from 29% in the second, while cash-out retention dipped from 20% to 19%, the lowest retention rate among that segment in more than two years

“Given the continued growth in tappable equity–up 5% year-over-year to the largest Q3 total on record–servicers may do well by leveraging granular data to more effectively target and increase retention of cash-out borrowers,” said Black Knight Data & Analytics President Ben Graboske.

Graboske noted while refinance activity is up across the board, “the characteristics of refinancing borrowers–along with their motivation and ‘trigger points’ to refinance–are anything but uniform,” he said. “Total tappable equity now stands at $6.2 trillion, marking the largest Q3 volume on record. While down a modest 1% from Q2 2019, tappable equity grew 5% year-over-year, the strongest such growth rate since late 2018. The average homeowner holds $119,000 in tappable equity that could be withdrawn while still retaining a conservative buffer of 20% home equity, up $3,450 from the same time last year.”