Black Knight: Tappable Equity at Highest Level Since 2006
Black Knight Financial Services, Jacksonville, Fla., said homeowners’ tappable equity hit $.4.7 trillion in 2016, the highest level since 2006.
The company’s monthly Mortgage Monitor report also reported annual home price appreciation of 5.5 percent in 2016 helped raise the number of U.S. mortgage holders with tappable equity to 39.5 million.
The report said 68 percent of tappable equity belongs to borrowers with current interest rates below today’s 30-year interest rate; 78 percent belongs to borrowers with credit scores of 720 or higher. Borrowers took out $31 billion in equity through cash-out refinances in the fourth quarter, up by 8 percent from the third quarter and by 50 percent year-over-year. Black Knight said the resulting post-cash-out refinance loan-to-value ratio of 65.6 percent was lowest on record, with an average credit score of 750.
Black Knight Data & Analytics Executive Vice President Ben Graboske said today’s equity landscape–in conjunction with a higher interest rate environment–will likely impact mortgage lending trends over the coming year.
“December 2016 marked 56 consecutive months of annual home price appreciation,” Graboske said. “That served to not only lift an additional one million formerly underwater homeowners back into positive equity throughout the year, but also increased the amount of tappable equity available to U.S. mortgage holders by an additional $568 billion.”
Graboske said cash-out refinance data suggests that homeowners have been increasingly tapping that equity, though perhaps more conservatively than homeowners had in the past. “Borrowers are still tapping equity at less than a third of the rate they were back in 2005, and they’re doing so more prudently,” he said.
Graboske noted, however, that the report shows prepayment speeds–an indicator of refinance activity–declined by nearly 40 percent since the start of 2017 in the face of today’s higher interest rate environment.
“Given the fact that nearly 70 percent of tappable equity belongs to borrowers with current interest rates below today’s prevailing 30-year interest rate, the incentive for many of these borrowers is shifting away from tapping equity via a first lien refinance and instead to home equity lines of credit,” Graboske said. “Based on past behavior, we may see a decline in first lien cash-out refinance volume, but it’s still likely that cash-out refinances–and purchase loans–will drive the lion’s share of prepayment activity over the coming year in any case. That’s why it’s so critical that those in the industry ensure that their prepayment models account for refinancing not just in terms of rate/term incentive, but also equity incentive as well.”
Other report results:
–Total U.S. loan delinquency rate: 4.21%, an 0.98 percent drop from December.
–Total U.S. foreclosure pre-sale inventory rate: 0.93%, a decline of 1.88 percent from December.
–States with highest percentage of non-current loans: Mississippi, Louisiana, Alabama, West Virginia and New Jersey.
–States with the lowest percentage of non-current loans: Idaho, Montana, Minnesota, Colorado and North Dakota.
–States with the highest percentage of seriously delinquent loans: Mississippi, Louisiana, Alabama, Arkansas and Tennessee.
