Black Knight: May ARM Prepayments Highest Since 2007
Black Knight, Jacksonville, Fla., said lower interest rates and the spring home buying seasons have led to overall prepayment activity more than doubling over the past four months to the highest level seen since late 2016.
The company’s monthly Mortgage Monitor report said borrowers with 2018 vintage loans are now driving more than twice as much prepayment volume as any other vintage after jumping by more than 300% over the past four months. Black Knight estimated closed refinance loans rose by more than 30% in May from April, with refinance volumes estimated to be three times higher than the 10-year low reached in November.
Black Knight estimated lower rates have resulted in 1.5 million potential refinance candidates in the 2018 vintage alone, matching the total of potential refinance candidates in the 2013-2017 vintages combined. The report said 8.2 million homeowners with mortgages could now both benefit from and likely qualify for a refinance, including more than 35% of those who took out their loans just last year
Black Knight Data & Analytics President Ben Graboske said ARM prepayment rates have now jumped to their highest level since 2007 as borrowers have sought to shed the uncertainty of their adjustable-rate products for the security of a low, fixed interest rate. “While we’ve observed increases across nearly every investor type, product type, credit score bucket and vintage, some changes stand out,” he said. “For instance, prepayments among fixed-rate loans have hewed close to the overall market average, rising by more than two times over the past four months.”
The report also found after two consecutive quarterly declines, tappable equity rose in in the first quarter, noting nearly 44 million homeowners with mortgages have more than 20% equity in their home. With a combined $5.98 trillion, that works out to an average of $136,000 per borrower with tappable equity.
The report said while tappable equity is nearing last summer’s record high $6.06 trillion, and will likely surpass that peak as home prices rise seasonally over the summer months, the annual growth rate has slowed considerably in recent quarters. Black Knight said annual growth rate of tappable equity slowed to 3% in the first quarter, down from 5% in the prior quarter and 16% one year ago, as slowing home prices–particularly in the most expensive markets–curbed tappable equity growth.