NOVEMBER 2016 REPORT
MORTGAGE MONITOR
NOVEMBER 2016
MORTGAGE MONITOR
CONTENTS
1 |
NOVEMBER FIRST LOOK RELEASE
2 |
EQUITY UPDATE
3 |
CASH-OUT & OTHER REFINANCE METRICS
4 |
ARM ORIGINATIONS & RISK UPDATE
5 |
APPENDIX
6 |
DISCLOSURES
Confidential, Proprietary and/or Trade Secret
TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, and/or an affiliate.
© 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved.
MORTGAGE MONITOR
NOVEMBER 2016
NOVEMBER 2016 OVERVIEW
Each month, the Black Knight Mortgage Monitor looks at a variety of issues related to
the mortgage and financial services industry.
This month, as always, we begin a look at some of the high-level mortgage
performance statistics reported in the company’s most recent First Look report,
with an update on delinquency, foreclosure and prepayment trends. From there, we
revisit the U.S. equity landscape in light of 53 consecutive months of annual home
price appreciation. Specifically, we provide an update on negative equity populations
around the country as well as the growing amount of tappable (lendable) equity
available in the market.
Next, we take a look at the changing landscape of refinance lending, as well as
provide an update on the volume of cash being extracted from the market via
first lien refinances. In addition, we draw upon Black Knight’s enhanced property
module to analyze post-refinance metrics and characteristics. Finally, we undertake
an analysis of adjustable rate mortgage (ARM) data to gain insight into ARM
originations and how interest rate movement is impacting both ARM lending and
potential ARM risk in the market.
In producing the Mortgage Monitor, the Data & Analytics division of Black Knight
Financial Services aggregates, analyzes and reports upon the most recently
available mortgage performance data from the company’s McDash loan-level
database. For more information on McDash or Black Knight Data & Analytics in
general, please call 844-474-2537 or email [email protected].
Confidential, Proprietary and/or Trade Secret
TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, and/or an affiliate.
© 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved.
NOVEMBER 2016
MORTGAGE MONITOR
Here we have an overview of findings from Black Knight’s ‘First Look’ at
November mortgage performance data. This information has been compiled
from Black Knight’s McDash loan-level mortgage performance database.
You may click on each chart to see its contents in high-resolution.
NOVEMBER FIRST
LOOK FINDINGS
Nov-16
Month-overmonth change
Year-over-year
change
Total U.S. loan delinquency rate (loans 30 or more days past due, but not in
foreclosure):
4.46%
2.55%
-9.43%
Total U.S. foreclosure pre-sale inventory rate:
0.98%
-1.35%
-28.88%
Total U.S. foreclosure starts:
60,400
6.90%
-9.31%
Monthly Prepayment Rate (SMM):
1.43%
-4.20%
56.07%
Foreclosure Sales as % of 90+:
1.82%
6.95%
2.70%
Number of properties that are 30 or more days past due, but not in foreclosure:
2,263,000
61,000
-228,000
Number of properties that are 90 or more days past due, but not in foreclosure:
682,000
5,000
-145,000
Number of properties in foreclosure pre-sale inventory:
498,000
-6,000
-200,000
2,761,000
55,000
-428,000
Number of properties that are 30 or more days past due or in foreclosure:
12 Month
Trend
»»
November almost always
sees an increase in the
national delinquency rate,
and this month’s 2.5 percent
rise – though bringing the rate
to its highest point since July
– was on the lower end from a
historical perspective
»»
The rate of annual declines
in delinquencies has been
slowing over the past 18
months after peaking at a
19 percent year-over-year
decline in August 2015;
the likely cause is simply
normalization in delinquency
rates
»»
The inventory of loans in
active foreclosure fell by 29
percent from last year, also
representing a very slight
slowdown in the rate of
decline, which hit a two-year
high in September at over 31
percent
»»
Foreclosure starts rose
by seven percent, but it’s
important to remember that
October had marked the
lowest start volume in over
a decade; even with the rise,
November saw the third
lowest monthly start volume
since 2006
»»
Prepayments remained
strong as loan applications
made prior to recent interest
rate increases continued to
close; there may likely be
further declines in December,
with a more pronounced drop
in early 2017
Confidential, Proprietary and/or Trade Secret
TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, and/or an affiliate.
© 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved.
NOVEMBER 2016
MORTGAGE MONITOR
Here we revisit the U.S. equity landscape in light of 53 consecutive months
of annual home price appreciation. Specifically, we provide an update on
negative equity populations around the country as well as the growing
amount of tappable (lendable) equity available in the market. This information
has been compiled from Black Knight’s McDash loan-level mortgage
performance database and the Black Knight Home Price Index. You may click
on each chart to see its contents in high-resolution.
EQUITY UPDATE
Negative Equity Volumes and Rates
Count of Underwater Properties
»»
Whereas negative equity
was once a widespread
national problem – with
nearly 30 percent of
all homeowners being
underwater on their
mortgages at the end of
2010 – it has now become
much more of a localized
issue
»»
Lower priced homes – those
in the bottom 20 percent of
prices in their communities
– are nine times more likely
to be underwater than those
in the top 20 percent
»»
The negative equity rate
for borrowers living in the
bottom 20 percent of their
metro area by price is 11.5
percent, compared to just
1.3 percent for those in the
top 20 percent of the market
40%
1 million homes returned to a
positive equity position over the first
3 quarters of 2016
12 Mil
8 Mil
30%
20%
2.2 Mil
4.4%
201609
201412
201312
201212
201112
201012
200912
200812
200712
200612
200512
200412
201512
3.2 Mil
6.4%
4 Mil
Mil
Only 2.2 million (4.4
percent) mortgage holders
remain underwater on their
homes, a decline of one
million since the beginning
of 2016
As % of Mortgaged Properties (right axis)
15.1 Mil
28.5%
16 Mil
»»
10%
0%
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© 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved.
MORTGAGE MONITOR
NOVEMBER 2016
EQUITY UPDATE
»»
As the maps on this
page and the next show,
negative equity populations
continue to become more
localized
»»
Three states in particular
stand out: Nevada, Missouri
and New Jersey, all of
which have negative equity
rates more than twice the
national average; of these,
Missouri is almost three
times the national average
»»
Negative equity is almost
non-existent in the Rocky
Mountains east to the
Missouri River; in fact, at
well below one percent,
Colorado and Texas have
and the lowest negative
equity rates in the country
»»
In the western U.S., only
Nevada and Arizona have
negative equity rates
above the national average;
Nevada’s 9.2 percent rate
is driven in large part by
Las Vegas, where 11 percent
of borrowers remain
underwater.
Confidential, Proprietary and/or Trade Secret
TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, and/or an affiliate.
© 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved.
NOVEMBER 2016
MORTGAGE MONITOR
EQUITY UPDATE
Chicago has the largest remaining
negative equity population at ~170K
20% of borrowers is St. Louis
remain underwater
Equity struggles are relatively non-existent
in coastal California areas
»»
This map shows the
concentration of negative
equity by metropolitan
statistical areas (MSAs)
»»
The size of a circle
represents volume of
underwater properties,
while increasing darkness
of the circles represent
higher negative equity
rates.
»»
Atlantic City leads the
nation’s metropolitan
areas in terms of negative
equity, with 23 percent of
its borrowers remaining
underwater, followed by St.
Louis at 20 percent
»»
At 170,000, Chicago has
– by far – the country’s
largest population of
underwater borrowers
Small pockets of negative equity
remain in inland CA areas
Confidential, Proprietary and/or Trade Secret
TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, and/or an affiliate.
© 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved.
NOVEMBER 2016
MORTGAGE MONITOR
EQUITY UPDATE
Tappable Equity of U.S. Mortgage Holders
»»
There are now 39 million
borrowers with tappable
equity in their homes,
meaning they have current
combined loan-to-value
(CLTV) ratios of less than 80
percent
»»
These borrowers have a total
of $4.6 trillion in available,
lendable equity—an average
of about $180,000 per
borrower—making for the
highest market total and
highest average per borrower
since 2006
»»
Total tappable equity grew by
$500 billion in just the first
three quarters of 2016
»»
There is currently over twice
as much lendable equity
today as there was at the
bottom of the market in late
2011/early 2012
»»
We are now within about
six percent of the peak in
lendable/tappable equity
seen back in late 2005/early
2006
$6,000
$4,000
Tappable Equity: Equity available on all residential properties with an existing mortgage before reaching a current CLTV of 80%
$4,638
2016-09
$4,122
2015-12
$3,557
2014-12
$3,123
2013-12
$2,557
2012-12
$2,234
2011-12
$2,603
$2,370
2010-12
2008-12
2007-12
2006-12
2005-12
$
2004-12
$1,000
2009-12
$2,830
$3,755
$4,627
$2,000
$4,914
$3,000
$4,285
Tappable Equity of Mortgage Holders in $Billions
$5,000
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© 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved.
NOVEMBER 2016
MORTGAGE MONITOR
EQUITY UPDATE
Top 10 Metros
$643B
Los Angeles, CA
$406B
San Francisco, CA
$323B
New York, NY
San Jose, CA
Chicago, IL
$200B
$140B
Washington D.C.
$138B
San Diego, CA
$131B
Seattle, WA
$128B
Miami-Fort, FL
$109B
Boston, MA
$105B
»»
The top 10 metropolitan
areas contain half of the
nation’s available tappable
equity; the top 25 contain
70 percent
»»
California alone – home to
three of the four top metros
– accounts for nearly 40
percent of total tappable
equity ($1.7 trillion) despite
having only about 16
percent of the nation’s
mortgages
»»
Texas – though lacking a
single metro in the Top 10 –
is second behind California)
in tappable equity,
accounting for six percent
of the nation’s total ($286
billion)
»»
Larger metropolitan areas
also tend to see higher
levels of equity per borrower
(shown as darker blue on
the map), making them
more attractive markets for
lenders to target as lending
costs continue to rise
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TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, and/or an affiliate.
© 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved.
NOVEMBER 2016
MORTGAGE MONITOR
EQUITY UPDATE
Tappable Equity By Current First Lien Interest Rate
»»
Recent interest rate
movement may impact how
(and if) borrowers tap into
equity
»»
This chart shows tappable
equity in the market broken
down by borrowers’ current
interest rates, which is
important since first lien
rates impact how (and even
whether) borrowers choose
to tap into available equity
in their homes
»»
Historically, borrowers with
interest rates above par
have been both more likely
to tap into equity and more
likely to refinance their
entire first lien to do so (and
getting a better first lien
interest in the process)
»»
Likewise, borrowers with
interest rates below par
have been less likely to tap
into equity, and more likely
to use a second lien to do so
when they do
»»
The share of tappable
equity held by borrowers
with a first lien interest rate
above the going 30-year
fixed rate dropped from 73
percent in October to just
33 percent as of December
29th
»»
All things considered,
HELOC lending may
become a more appealing
vehicle for tapping equity
than first lien refinance
alternatives, particularly
for the borrowers holding
two-thirds of the nation’s
tappable equity with
interest rates below par
$750B
$625B
$500B
The share of tappable (lendable) equity held by borrowers with
interest rates above the going 30-year rate has dropped from 73%
in October to 33% today*
$375B
$250B
7%andAbove%
6.75-6.99%
6.50-6.74%
6.25-6.49%
6.00-6.24%
5.75-5.99%
5.50-5.74%
5.25-5.49%
5.00-5.24%
4.75-4.99%
4.50-4.74%
4.25-4.49%
4.00-4.24%
3.75-3.99%
3.50-3.74%
3.25-3.49%
3.00-3.24%
$B
Below 3%
$125B
Tappable Equity: Equity available on all residential properties with an existing mortgage before reaching a current CLTV of 80%
* Based on Freddie 30-Year fixed rate of 3.47% in October 2016 which has increased to 4.30% as of December 22nd
Confidential, Proprietary and/or Trade Secret
TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, and/or an affiliate.
© 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved.
NOVEMBER 2016
MORTGAGE MONITOR
Here we take a look at the changing landscape of refinance lending, as
well as provide an update on the volume of cash being extracted from the
market via first lien refinances. In addition, we draw upon Black Knight’s
enhanced property module to analyze post-refinance metrics and
characteristics. This information has been compiled from Black Knight’s
McDash loan-level mortgage performance database. You may click on
each chart to see its contents in high-resolution.
CASH-OUT & OTHER
REFINANCE METRICS
Refinance Candidates and Refinance Origination Volumes
Cash-out Refinance Originations
Rate/Term Refinance Originations
»»
The refinanceable
population has now fallen
to just 2.8 million; a 65
percent drop from October,
to the lowest level seen
since 2008
»»
At that point in 2008,
refinance originations were
60 percent below where
they are today, but the
nation was also in the midst
of a recession
»»
The lowest post-recession
refinanceable population
– prior to now – was 3.25
million in January 2014,
when interest rates neared
4.5 percent; the following
month refinance volumes
dropped to 55 percent
below where they are today
10M
Refi Candidate pool has
fallen to lowest level since
2008
500K
8M
6M
400K
300K
4M
200K
Refinance Candidates*
600K
2.8M
2M
2016-09
TODAY*
2016-06
2016-03
2015-12
2015-09
2015-06
2015-03
2014-12
2014-09
2014-06
2014-03
2013-12
2013-09
2013-06
2013-03
2012-12
2012-09
2012-06
2011-12
2012-03
2011-09
2011-06
2011-03
2010-12
2010-09
2010-06
2010-03
2009-12
2009-09
2009-06
2009-03
2008-12
2008-09
2008-06
2008-03
2007-12
2007-09
2007-06
2007-03
2006-12
2006-09
2006-06
2006-03
2005-12
2005-09
100K
2005-06
Rate/Term Originations as % of Refi Candidates
As interest rates continued
to rise throughout the end
of the year, the population
of borrowers both likely
to qualify for and with an
incentive to refinance fell
even further
Refinance Candidates* (right axis)
700K
0K
»»
M
Origination Month
Refinance Candidates are borrowers that are current on their 30-year mortgage with <=80% current LTVs, credit scores >= 720, and current interest rates on their
mortgage >= 75 BPS above the 30-year fixed rate at the time as reported in the FHLMC rate survey
TODAY* is based on FHLMC 30-year rate as of December 29th 2016 of 4.32%
»»
This chart shows the direct correlation between refinance candidates and the volume of
refinance originations as well as the burnout indicated by the increasing delta between the
two in recent years
»»
We see that interest rate movements and the corresponding rise and fall of refi candidates
have a very distinct impact on rate/term refinance origination volumes, but also impact
cash-out refinances volumes post-crisis as well
»»
Finally, the chart shows that, prior to 2009, despite a relatively small number of refinance
candidates, volumes were still high; but we also see that the market was
heavily – 75 to 80 percent – driven by cash-out refinances
»»
Despite growth in that segment, cash-out volumes are nowhere near those seen prerecession; one should not expect 2005-2007 levels of refinance originations (despite
having more candidates today) unless lending standards change
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© 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved.
NOVEMBER 2016
MORTGAGE MONITOR
CASH-OUT & OTHER
REFINANCE METRICS
»»
Here we look at rate/term
refinance originations as
a share of total refinance
candidates and see that
burnout was becoming
evident in the market even
before the recent rise in
interest rates
»»
The share of borrowers
who could benefit from and
qualify for a refinance that
actually do so has been
dropping over the past three
years
»»
In fact, only two percent of
refinanceable borrowers
took advantage of the
opportunity in the month
of July (the lowest pullthrough rate in over 10
years)
»»
The chart also shows
“pops” in pull-through
rates when rates have
dropped – not only are there
larger volumes of refinance
originations, but a larger
share of refinanceable
borrowers per capita takes
advantage; such pops
per capita are still seen
today, but not nearly as
pronounced as in the past
»»
This increasing level of
burnout suggests that we
may see a larger drop in
refinance originations than
the last time refinanceable
populations were this low
Rate/Term Refinance Originations as Percent of Refinance Candidates
Rate/Term Originations as % of Candidates (left axis)
Freddie 30-Year Fixed Interest Rate (right axis)
8.0%
20.0%
6.0%
5.0%
15.0%
4.0%
10.0%
3.0%
2.0%
Freddie Mac 30-Year Fixed Interest Rate
7.0%
Rate/Term refinance originations as a percent of borrowers with
the ability and incentive to refinance has been steadily declining
over the past 3 years
5.0%
2016-09
2016-06
2016-03
2015-12
2015-09
2015-06
2015-03
2014-12
2014-09
2014-06
2014-03
2013-12
2013-09
2013-06
2013-03
2012-12
2012-09
2012-06
2011-12
2011-09
2012-03
2011-06
2011-03
2010-12
2010-09
2010-06
2010-03
2009-12
2009-09
2009-06
2009-03
2008-12
2008-09
2008-06
2008-03
2007-12
2007-09
2007-06
2007-03
2006-12
2006-09
2006-06
2006-03
2005-12
2005-09
0.0%
2005-06
1.0%
2005-03
Rate/Term Originations as % of Refi Candidates
25.0%
0.0%
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NOVEMBER 2016
MORTGAGE MONITOR
CASH-OUT & OTHER
REFINANCE METRICS
»»
Over 400,000 cash-out
refinances took place in
Q3 2016; this was up 14
percent from Q2 and a 35
percent increase over Q3
2015.
»»
In all, $26.2 billion in
equity was extracted via
cash-out refinances in Q3,
the highest quarterly total
in over seven years (since
Q2 2009), bringing the
2016 YTD total to $70.8
billion, again the highest
it’s been since 2009
»»
We’ve now seen 10
consecutive quarterly
increases in equity drawn
from cash-out refinances
»»
Less than two percent of
available equity has been
tapped this year – which is
70 percent below the rate
(and volume) that equity
was being tapped in
2005 – while the resulting
average post-cash out LTV
of 66 percent is near 10year lows, and the average
credit score is above 750,
slightly up from Q2 2016
»»
Cash-outs already
make up 43 percent of
all refinance activity, a
figure that will likely rise
as rate/term refinances
dry up in the face of rising
interest rates; if so, 2017
could see cash-outs make
up the majority of refi
originations for the first
time since 2008
»»
However, cash-out
volumes will likely also be
impacted as borrowers
look to hold on tight to
their current low interest
rates; when rates rose
during the ‘taper tantrum’
cash-outs dropped by
over 40 percent
First Lien Cash-out Refinances
Total Cashed Out in $Billions
Share of All First Lien Refinance Originations (right axis)
100%
$120
$100
60%
$60
43%
40%
$40
$26.2B
Share of All Refinance Originations (By Count)
$80
20%
Q3
Q4
Q2
Q1
Q3
2015
Q4
Q2
Q1
Q3
2014
Q4
Q2
Q1
Q3
Q2
2013
Q4
Q1
Q3
2012
Q4
Q2
Q1
Q3
Q2
2011
Q4
Q1
Q3
2010
Q4
Q2
Q1
Q3
Q2
2009
Q4
Q1
Q3
2008
Q4
Q2
Q1
Q3
2007
Q4
Q2
Q1
Q3
2006
Q4
Q2
Q1
Q3
2005
Q4
$
Q2
$20
Q1
Equity Tapped via Cash-out Refis in $Billions
80%
0%
2016
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NOVEMBER 2016
MORTGAGE MONITOR
CASH-OUT & OTHER
REFINANCE METRICS
1.75%
1.50%
1.75%
1.75%
Average Interest Rate Reduction
45%
Average Interest
Interest Rate
Rate Reduction
Reduction
Average
40%
45%
45%
0.80%
0.75%
1.00%
1.00%
0.80%
0.80%
0.50%
0.75%
0.75%
40 percent of rate/term
refinances in Q3 2016
included a reduction in
term (i.e. 30 to 20 year;
30 to 15 year, etc.); this
is the second highest
quarterly share we’ve
seen.
»»
Weighted average credit
scores (WACS) of rate/
term refinances have
been rising throughout
2016, hitting 764 in
Q3, the second highest
quarterly WAC in over 10
years.
»»
The last time rates rose,
the average WACS on
rate/term refinances
dropped >20pts down
below 740; if rates remain
where they are today,
this figure will likely drop
along with refinance
volumes in 2017
»»
Servicer retention rate
(the share of rate/
term refinances that
remain with the prior
lender/servicer in the
subsequent loan) has
dropped to 23 percent,
the lowest retention rate
since 2007, after peaking
at 48 percent in Q1 2011
40%
40%
20%
25%
25%
i.e. from 30 years to 20 years; from 30 years to 15 years; etc.
i.e.from
from30
30years
yearstoto20
20years;
years;from
from30
30years
yearstoto15
15years;
years;etc.
etc.
i.e.
0.00%
0.00%
5%
5%
Weighted Average Credit Score
Weighted Average
Average Credit
Credit Score
Score
Weighted
60%
764
60%
60%
50%
Servicer Retention Rate
Servicer Retention
Retention Rate
Rate
Servicer
764
764
50%
50%
40%
40%
40%
30%
730
740
740
710
720
720
»»
40%
5%
10%
10%
Thisfigure
figureexcludes
excludesborrowers
borrowersthat
thatreduced
reducedthe
theterm
termofoftheir
theirmortgage
mortgage
This
720
730
730
The average borrower
reduced their interest
rate by 80BPS through
a rate/term refi in Q3
(this has been relatively
consistent throughout
2016), while the average
savings fell to $242/
month, the lowest it’s
been since Q2 2015, and
the third lowest since
2009
25%
30%
30%
10%
15%
15%
This figure excludes borrowers that reduced the term of their mortgage
0.00%
0.25%
0.25%
740
750
750
»»
15%
20%
20%
0.25%
0.50%
0.50%
750
760
760
Here we look at
some other notable
observations from Q3
2016 rate/term refinance
originations
30%
35%
35%
1.00%
1.25%
1.25%
760
770
770
Included aa Reduction
Reduction in
in Term
Term
Included
35%
40%
40%
1.25%
1.50%
1.50%
770
Included a Reduction in Term
»»
23%
30%
30%
20%
20%
20%
10%
700
710
710
10%
10%
0%
700
700
0%
0%
Servicers only retained 23% of borrowers that refinanced their
mortgage in Q3-2016, the lowest such retention rate since 2007
Servicers only
only retained
retained 23%
23% of
of borrowers
borrowers that
that refinanced
refinanced their
their
Servicers
mortgage inin Q3-2016,
Q3-2016, the
the lowest
lowest such
such retention
retention rate
rate since
since 2007
2007
mortgage
23%
23%
Confidential, Proprietary and/or Trade Secret
TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, and/or an affiliate.
© 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved.
NOVEMBER 2016
MORTGAGE MONITOR
Here we undertake an analysis of adjustable rate mortgage (ARM) data
to gain insight into ARM originations and how interest rate movement is
impacting both ARM lending and potential ARM risk in the market. This
information has been compiled from Black Knight’s McDash loan-level
mortgage performance database. You may click on each chart to see its
contents in high-resolution.
ARM ORIGINATIONS &
RISK UPDATE
ARM Share of Originations
By Count (left axis)
ARM Share of First Lien Mortgage Originations
45%
30%
Early indications show that
fewer than four percent of
October 2016 originations
by count and fewer than nine
percent by volume were ARMs
»»
That’s the lowest share by
volume since late 2012/early
2013 (when rates were below
3.5 percent) and the lowest
share by count since 2009
»»
Historically share by volume
is typically higher than share
by count, as ARMs tend to
be more popular in more
expensive market segments,
specifically in jumbo lending
»»
The average ARM credit score
continues to be 765+ and over
the past three years, ARMs
have averaged 18pt higher
credit scores than their fixed
rate counterparts, an inversion
from 2004-2007, when the
average credit score on ARM
originations was 10-12 points
lower than that of the average
fixed rate loan
»»
A look at recent history shows
that as rates rise, so does the
ARM share of the market
»»
In late 2013/early 2014 (when
rates were near 4.5 percent)
the ARM share was twice
what it is today, and last fall
when rates were up near four
percent it was over 60 percent
higher than today
»»
If this trend holds true and
interest rates remain above
four percent, it’s likely there
will be a marked rise in ARM
lending in 2017
Freddie 30-Year Intrest Rate (right axis)
60%
8.0%
ARM share of originations (by volume) is at
its lowest level since January 2013; but recent
history has shown that as interest rates rise, so
does the ARM share of the market
6.5%
5.0%
15%
3.5%
0%
2.0%
Freddie Mac 30-Year Fixed Interest Rate
By Volume (left axis)
»»
Confidential, Proprietary and/or Trade Secret
TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, and/or an affiliate.
© 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved.
NOVEMBER 2016
MORTGAGE MONITOR
ARM ORIGINATIONS &
RISK UPDATE
Prepayment Rate (CPR) by Interest Type
ARM
»»
ARMs continue to prepay
more than 20 percent
faster than fixed rate loans
overall; this is somewhat
expected, as ARMs by
nature typically have higher
prepayment speeds
»»
However, historically when
rates are low and refinance
volumes are up (as they
were until November), fixed
rate CPRs typically draw
near to, or exceed, ARM
prepayment speeds; this
has not been the case this
fall
»»
Perhaps more importantly,
roughly two-thirds of
borrowers refinancing their
ARMs are converting to
fixed rate mortgages; this,
along with drops in the ARM
share of originations, has
been reducing the overall
ARM mix in the market
»»
As rates rise, the delta
between ARM and fixed
prepayment activity will
likely increase
Fixed
28%
Conditional Preapyment Rate (CPR)
21%
14%
7%
In addition to ARMs prepaying at a faster rate, two-thirds of all borrowers refinancing
their ARM loans are switching to a fixed rate mortgage which further reduces the
active ARM population
0%
Confidential, Proprietary and/or Trade Secret
TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, and/or an affiliate.
© 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved.
NOVEMBER 2016
MORTGAGE MONITOR
ARM ORIGINATIONS &
RISK UPDATE
»»
There are currently 5.25
million active ARMs, the
lowest volume since
2002; this represents
approximately 10 percent
of the active mortgage
market, the lowest share
since 2000
»»
Fewer than 1.4 million active
ARMs are still in their initial
fixed rate term and will face
payment adjustments when
the adjustable phase of
their mortgage begins
»»
This is the smallest
population of pre-reset
ARMs since 2001; hence,
risk of initial ARM resets
in the market remains
historically low
»»
This is typically the group
of borrowers to monitor
most closely from a risk
perspective; to wit, recall
the wave of defaults on
resetting ARMs originated
in 2004-2007
»»
At the end of 2006 – at the
beginning of the housing
collapse – there were over
13 million active ARMs (1/4
of the entire mortgage
market) more than 2.5x
more than today
»»
10.5M (80 percent) of
those ARMs were still
facing initial resets, nearly
8x as many pre-reset ARMs
in the market as today
»»
At that point in time, one
in five active mortgages
was an ARM still operating
under a teaser rate; today,
fewer than three percent
of all mortgages are ARMs
operating under an initial
fixed rate and, in recent
originations, those initial
fixed terms have become
longer as well
Active ARM Mortgages by Count
Already Reset
Has Not Reset
14M
12M
Of the 5.25 million active ARM mortgages
in the market, only 1.4M remain under
their initial fixed (“teaser”) rate
10M
8M
6M
4M
2016-11
2015-11
2014-11
2013-11
2012-11
2011-11
2010-11
2009-11
2008-11
2007-11
2006-11
2005-11
2004-11
2003-11
2002-11
2001-11
0M
2000-11
2M
Confidential, Proprietary and/or Trade Secret
TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, and/or an affiliate.
© 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved.
NOVEMBER 2016
MORTGAGE MONITOR
ARM ORIGINATIONS &
RISK UPDATE
Active ARM Mortgages by Initial Reset Month
Already Reset
»»
2017’s 154,000 initial
resets mark the lowest
annual volume of initial
ARM resets in well over 10
years
»»
2018 is slated to be even
lower at 117,000, although
any 1-year ARM originated
in 2017 would also be added
to that population
»»
There continues to be a
shift towards extended
initial fixed periods on
ARMs; 85 percent of 2016
ARM originations had an
initial fixed period of five or
more years
»»
The largest group of
borrowers facing 2017
resets – just under 50,000
– are those with 2012
5-year ARMs (32 percent of
the total)
»»
2016 1-year ARMs and
2007 10-year ARMs each
account for 26 percent of
total 2017 resets
»»
Of these, since rates are
so much lower now than in
2007, it is quite possible
that 2007 10-year ARM
borrowers (dependent
upon their margins) may
actually see a decrease in
their monthly payments
Has Not Reset
60K
Make-up of 2017 Initial ARM Resets
Count of Active ARM Mortgages
50K
40K
30K
2016 Vintage
1-Year ARMs
26%
2012 Vintage
5-Year ARMs
32%
Other
16%
154k Initial ARM Resets
slated for 2017
2007 Vintage
10-Year ARM
26%
117k Initial ARM Resets
slated for 2018*
20K
10K
0K
Initial Reset Month
* Subject to change as any ARM originations in 2017 with a 1 year initial fixed rate period will also have an initial reset in 2018
Confidential, Proprietary and/or Trade Secret
TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, and/or an affiliate.
© 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved.
NOVEMBER 2016
MORTGAGE MONITOR
»»
The vast majority of ARMs
operate under some form of
the LIBOR or Treasury index,
both of which have seen
increases for the past two
years and have been picking
up steam
»»
As of October, the 1-year
LIBOR was up 70BPS from the
year prior and the Constant
Maturity Treasury Index was
up over 30BPS from one
year prior, the largest annual
increases seen in each of
those indexes since 2006
»»
Since ARM interest rates are
calculated by adding a margin
to the corresponding index,
as these indexes rise, so do
borrowers’ interest rates and
monthly payments upon their
next rate adjustment (which
can take place every month,
every six months, or, more
commonly, every 12 months)
»»
Correspondingly, of the
population of ~3.9 million
active post-reset ARMs,
roughly 60 percent have seen
rises in their interest rates
(and monthly payments) over
the past 12 months
»»
Over 1.5 million of those
seeing payment increases
are ARMs originated from
2004-2007; over 250,000
have seen their rates go
up by 80BPS or more;
these borrowers have been
becoming delinquent over the
past 12 months at twice the
rate of those who saw milder
increases
»»
It should be noted that
approximately 80 percent
of these loans still operate
at or below their original
note rate even after these
recent increases, due to the
sharp decline in ARM indexes
in 2007-2008 during the
downturn in the market
ARM ORIGINATIONS &
RISK UPDATE
ARM Indexes
1-Year LIBOR Rate
Constant Maturity Treasury Rate
7.50%
Both the 1-Year LIBOR and
Treasury rate have been on the rise over
the past 24+ months
5.00%
2.50%
0.00%
Interest Rate Changes on
Post-Reset ARMs over Past 12-mo
1,500,000
1,250,000
Over 2.2 million borrowers with
post-reset ARM loans have seen their
interest rates (and payments) begin to
rise over the past 12 months
1,000,000
750,000
500,000
250,000
-
»»
In fact, roughly half of these borrowers have a current interest rate 150BPS or more
below the initial interest rate on their mortgages
»»
For the most part recent increases have been mild, with 70 percent of those seeing a rise
ranging from 21-60BPS, but additional increases are likely as these indexes are currently
trending upward and additional ARM resets continue to take place on these mortgages
Confidential, Proprietary and/or Trade Secret
TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, and/or an affiliate.
© 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved.
NOVEMBER 2016
MORTGAGE MONITOR
APPENDIX
Nov-16
Monthly
Change
YTD Change
»»
Yearly
Change
Delinquencies
4.46%
2.55%
-12.43%
-9.43%
Foreclosure
0.98%
-1.35%
-24.76%
-28.88%
Foreclosure Starts
60,400
6.90%
-15.99%
-9.31%
Seriously Delinquent (90+) or
in Foreclosure
2.33%
-0.25%
-21.12%
-22.87%
New Originations (data as of
Oct-16)
703K
-3.9%
31.6%
27.5%
Nov-16
Oct-16
Sep-16
Aug-16
Jul-16
Jun-16
May-16
Apr-16
Mar-16
Feb-16
Jan-16
Dec-15
Delinquencies
4.46%
4.35%
4.27%
4.24%
4.51%
4.31%
4.25%
4.24%
4.08%
4.45%
5.09%
4.78%
4.92%
Foreclosure
0.98%
0.99%
1.00%
1.04%
1.09%
1.10%
1.13%
1.17%
1.25%
1.30%
1.30%
1.37%
1.38%
Foreclosure Starts
60,400
56,500
61,700
68,800
61,300
69,300
62,100
58,700
72,800
84,300
71,900
78,100
66,600
Seriously Delinquent (90+) or
in Foreclosure
2.33%
2.33%
2.32%
2.36%
2.46%
2.47%
2.55%
2.62%
2.70%
2.82%
2.95%
2.97%
3.02%
703K
732K
776K
645K
712K
660K
608K
612K
455K
417K
534K
455K
703K
732K
776K
645K
712K
660K
608K
455K
417K
534K
455K
4.46%
4.35%
4.27%
4.24%
4.51%
4.31%
4.25%
4.24%
4.08%
4.45%
5.09%
4.78%
4.92%
Nov-15
New Originations
Total Delinquencies
612K
New Originations
November 2016
Data Summary
Confidential, Proprietary and/or Trade Secret
TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, and/or an affiliate.
© 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved.
NOVEMBER 2016
MORTGAGE MONITOR
APPENDIX
Month
TOTAL
ACTIVE
COUNT
30 DAYS
60 DAYS
90+ DAYS
FC
Total NonCurrent
FC Starts
Average Days Average Days
Delinquent for Delinquent for
90+
FC
1/31/05
47,706,128
1,197,062
339,920
458,719
276,745
2,272,446
50,922
242
324
165.8%
1/31/06
50,900,620
1,242,434
387,907
542,378
258,613
2,431,332
76,477
207
308
209.7%
1/31/07
53,900,458
1,425,030
468,441
551,439
393,973
2,838,883
117,419
203
267
140.0%
1/31/08
55,478,782
1,743,420
676,266
950,639
813,560
4,183,885
195,033
190
256
116.8%
1/31/09
55,788,441
2,001,314
932,436
1,878,981
1,321,029
6,133,760
250,621
193
323
142.2%
1/31/10
55,098,009
1,945,589
903,778
2,972,983
2,068,572
7,890,922
292,308
253
418
143.7%
1/31/11
53,861,778
1,750,601
746,634
2,078,130
2,245,250
6,820,615
277,374
333
527
92.6%
1/31/12
52,687,781
1,592,463
652,524
1,796,698
2,205,818
6,247,503
223,394
395
666
81.5%
1/31/13
51,229,692
1,464,583
587,661
1,551,415
1,742,689
5,346,348
156,654
460
803
89.0%
1/31/14
50,380,779
1,341,074
529,524
1,278,955
1,213,046
4,362,599
97,467
486
935
105.4%
1/31/15
50,412,744
1,238,453
465,849
1,060,002
884,901
3,649,204
93,280
509
1,031
119.8%
1/31/16
50,541,353
1,298,682
444,594
831,284
659,237
3,233,797
71,900
495
1,047
126.1%
2/29/16
50,562,450
1,102,328
377,130
772,441
655,311
2,907,210
84,305
489
1,064
117.9%
3/31/16
50,533,910
986,412
343,124
732,765
630,766
2,693,065
72,762
514
1,071
116.2%
4/30/16
50,662,957
1,063,480
351,929
730,179
595,235
2,740,824
58,728
520
1,088
122.7%
5/31/16
50,654,959
1,072,189
361,463
719,283
574,035
2,726,970
62,085
519
1,092
125.3%
6/30/16
50,568,835
1,112,478
372,917
692,370
558,345
2,736,110
69,250
519
1,087
124.0%
7/31/16
50,669,860
1,198,629
392,644
695,148
550,075
2,836,496
61,253
502
1,084
126.4%
8/31/16
50,725,469
1,099,276
382,249
669,173
527,298
2,677,996
68,820
502
1,060
126.9%
9/30/16
50,683,337
1,115,044
381,662
668,114
509,047
2,673,867
61,664
492
1,051
131.2%
10/31/16
50,631,883
1,134,365
390,991
676,993
503,719
2,706,068
56,451
486
1,051
134.4%
11/30/16
50,739,323
1,181,537
399,378
682,348
497,957
2,761,219
60,418
471
1,044
137.0%
Ratio of 90+
to FC
»»
Loan counts and average
days delinquent
Confidential, Proprietary and/or Trade Secret
TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, and/or an affiliate.
© 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved.
NOVEMBER 2016
MORTGAGE MONITOR
APPENDIX
State
Yr/Yr
NonChange in
Curr %
NC%
Del %
FC %
State
National
4.5%
0.98%
5.4%
-13.4%
National
MS
10.4%
1.1%
11.6%
-7.8%
FL
*
Yr/Yr
NonChange in
Curr %
NC%
Del %
FC %
State
4.5%
0.98%
5.4%
-13.4%
National
4.8%
1.6%
6.4%
-19.4%
IA
Del %
FC %
Yr/Yr
NonChange in
Curr %
NC%
4.5%
0.98%
5.4%
-13.4%
3.7%
0.9%
4.6%
-9.2%
NH
4.0%
0.6%
4.6%
-13.5%
*
LA
*
8.7%
1.4%
10.1%
-0.8%
MD
*
5.3%
1.0%
6.4%
-13.9%
NJ
*
*
5.1%
1.2%
6.3%
-10.7%
VA
4.0%
0.4%
4.4%
-9.9%
5.6%
0.6%
6.2%
-7.5%
WY
3.8%
0.6%
4.3%
0.6%
3.5%
0.4%
3.9%
-12.5%
5.0%
3.2%
8.2%
-17.9%
OH
AL
7.4%
0.7%
8.1%
-9.7%
TX
WV
7.0%
1.0%
7.9%
-5.9%
NM
*
4.3%
1.8%
6.1%
-13.0%
NE
*
*
NY
*
4.8%
2.9%
7.7%
-14.7%
HI
3.3%
2.6%
6.0%
-19.2%
UT
3.2%
0.4%
3.6%
-17.5%
ME
*
5.0%
2.4%
7.4%
-15.6%
NC
5.2%
0.6%
5.8%
-10.6%
AZ
3.2%
0.4%
3.6%
-13.2%
5.8%
1.5%
7.3%
-17.2%
MA
4.5%
1.2%
5.7%
-15.0%
WA
2.5%
0.8%
3.3%
-24.9%
RI
IN
*
6.0%
1.3%
7.2%
-9.5%
VT
*
3.9%
1.6%
5.6%
-5.9%
CA
2.9%
0.4%
3.3%
-17.2%
OK
*
5.6%
1.5%
7.2%
-7.6%
KY
*
4.5%
1.1%
5.6%
-11.7%
AK
2.9%
0.4%
3.3%
11.3%
PA
*
5.7%
1.3%
7.0%
-11.7%
KS
*
4.7%
0.8%
5.5%
-9.0%
OR
2.3%
0.9%
3.2%
-23.0%
*
4.3%
1.2%
5.4%
-14.3%
SD
2.6%
0.6%
3.2%
-7.0%
4.7%
0.5%
5.2%
-12.4%
ID
2.5%
0.6%
3.1%
-18.8%
4.0%
0.9%
4.8%
-13.3%
MT
2.4%
0.6%
2.9%
-15.6%
AR
6.2%
0.8%
7.0%
-11.6%
IL
CT
*
5.1%
1.6%
6.8%
-10.1%
MO
DE
*
5.2%
1.5%
6.7%
-14.2%
WI
SC
*
5.7%
1.1%
6.7%
-11.1%
NV
3.6%
1.2%
4.8%
-23.7%
MN
2.6%
0.3%
2.9%
-11.0%
6.0%
0.6%
6.6%
-10.1%
MI
4.5%
0.3%
4.8%
-10.3%
CO
2.3%
0.2%
2.5%
-20.8%
TN
6.1%
0.5%
* - Indicates Judicial State
6.5%
-11.7%
DC
3.3%
1.5%
4.8%
-15.7%
ND
1.8%
0.5%
2.3%
5.9%
GA
*
*
*
»»
State-by-state
rankings by noncurrent loan
population
Confidential, Proprietary and/or Trade Secret
TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, and/or an affiliate.
© 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved.
NOVEMBER 2016
MORTGAGE MONITOR
DISCLOSURES
Please refer to the links below for specific disclosures
relating to Product Definitions, Metrics Definitions and
Extrapolation Methodology.
>> PRODUCT DEFINITIONS
>> METRICS DEFINITIONS
>> EXTRAPOLATION METHODOLOGY
Confidential, Proprietary and/or Trade Secret
TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, and/or an affiliate.
© 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved.