Black Knight: Servicer Retention Rates Improve Significantly Among Rate-Driven Refinance Transactions

Black Knight, Jacksonville, Fla., said falling interest rates and easy access to refinance candidates pushed retention rates up in second quarter, with servicers retaining 24% of refinancing borrowers, the highest such retention rate since late 2017.

The company’s monthly Mortgage Monitor said retention of rate/term refinance borrowers hit 30% in second quarter, after languishing below 20% for much of 2018. However, amidst record-high tappable equity and falling interest rates, retention rates of cash-out refinance borrowers–accounting for 62% of all refinance lending in the second quarter–saw just one in five being retained

The report said “tappable” equity reached a record-high of $6.3 trillion in the second quarter, with 45 million homeowners with mortgages having an average of $140,000 in equity available to them before reaching a maximum combined loan-to-value ratio of 80%. Nearly half of tappable equity holders have current first-lien rates of 4.25% or higher, making cash-out refinance an attractive option for those wishing to access the equity in their homes. More than three-fourths (76%) of tappable equity holders have interest rates of 3.75% or higher, meaning they could potentially tap into home equity with little change to their existing 30-year rate, or perhaps even a slight improvement.

Additionally, report noted more than half of this population has credit scores of 760 or above, which Black Knight Data & Analytics President Ben Graboske said makes for a “relatively low-risk” market segment; another 16% have scores between 720-759.

“Retention rates tend to be higher for rate/term refinances than any other type of transaction, and that’s just what we observed as of the end of Q2 2019,” Graboske said. “The good news is that interest rates are at three-year lows, and anecdotal evidence suggests that in recent weeks, mortgage lenders had been inundated with inbound refinance business that’s relatively easy to retain. Borrowers refinancing out of 2018 vintage mortgages–a group accounting for nearly 20% of all refinance transactions over the first half of 2019–have been especially so.”.

But Graboske noted the not-so-good news is that–in an environment of record-high levels of tappable equity and low interest rates that makes cash-out refinances an affordable option for accessing that equity–servicers are retaining just one in five cash-out borrowers. “Savvy lenders and servicers need to go beyond the low- hanging fruit of 2018 vintage loans in order to retain this business–and capture additional market share where others are missing out. The key to success is being able to identify and target these customers through an informed, data-driven growth and retention strategy.”

Other report findings:

–Total foreclosure pre-sale inventory rate: 0.49%, down by 0.49% from June and down by 13.2% from a year ago.

–Total foreclosure starts: 39,300, down by 2.24% from June and down by 18.84% from a year ago.

–Monthly prepayment rate: 1.43%, up by 25.71% from June and up by 58.4% from a year ago.

–Properties 30 or more days past due, but not in foreclosure: 1.807 million, down by 143,000 from June and down by 54,000 from a year ago.

–Properties 90 or more days past due, but not in foreclosure: 444,000, down by 11,000 from June and down by 84,000 from a year ago.

–Properties in foreclosure pre-sale inventory: 258,000, down by 1,000 from June and down by 35,000 from a year ago.

–Properties 30 or more days past due or in foreclosure: 2.065 million, down by 144,000 from June and down by 89,000 from a year ago.

–States with the highest non-current rates: Mississippi, Louisiana, Alabama, West Virginia, Arkansas.

States with the lowest non-current rates: Colorado, Oregon, Washington, Idaho, California.

States with the highest percentage of serious delinquencies: Mississippi, Alabama, Louisiana, Arkansas, West Virginia.