Record Low Mortgage Originations don’t hinder growth opportunities

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According to a report released by the Black Knight Financial Services, the first two months of 2014 have been at the lowest level of mortgage origination in at least 14 years. Despite the figures, the real estate market remains steady, particularly due to the numerous cash transactions.

As shown in Black Knight’s Mortgage Monitor (the February edition), the number of mortgages originated every month has been decreasing since mid-2013. The monthly origination has thus dropped to the lowest recorded level, that of the year 2000. In this context, the real estate market draws its stability from the cash sales (50% of transactions) and from investor activity. Moreover, there was a 15% increase in traditional (non-distressed) sales, while the number of distressed transactions keeps going down.

 

The firm measures taken against distressed loans has led to a serious decrease in loan change throughout 2013. Last year ended with the lowest interest rates in the post-crisis history. Yet, this year started with an increase of mortgage modification activity through the changes in the FHA variant of the Home Affordable Modification Program (HAMP).

 

The industry’s modification efforts have matured and there are considerably fewer borrowers who re-default, as compared to previous years. However, experts warn that there will be serious rate resets after this fall’s adjustments. This is the situation for more than 95% of the approximately 2.5 million interest rate reductions. Due to the existing control measures, the interest resets will not cause critical changes in monthly loan payments at first. However, these loans require careful monitoring for correct risk assessment. It is more than obvious that even after modification, borrower equity still matters greatly. Re-default rates for underwater mortgages is approximately 30% higher.

 

Prepayments represent a supplementary signal of the decrease in refinancing mortgages. The abrupt plunge in the Home Affordable Refinance Program (HARP) – aimed at refinancing current  Fannie Mae and Freddie Mac loans – has caused a decrease in the number of government originations.

 

There are no sings of loosening in credit standards. 33% of mortgages are originated for borrowers with credit scores ranging below 719, of which 10% range below 659. Despite existing risks, opportunities for developing mortgage origination activity are real, waiting to be exploited.

 

 

 

The Monitor also analyzed the new regulations of the Consumer Financial Protection Bureau (CFPB) which went into effect in January. The publication points to a sharp shift in the timing of foreclosure. Thus, according to CFPB rules, a foreclosure procedure may begin if a mortgage is at least 120 days delinquent, and in response foreclosure starts at 90 days have all but disappeared. There has been a rise of more than 100% in the foreclosure starts at four months, since December 2013.

 

 

A significant drop has also been signaled in foreclosure sales that have reached the lowest levels since 2007. The numbers will continue to drop given the fact that there are fewer loans undergoing foreclosure. This led to a growth of pipeline ratios (the period required for clearing through the backlog of delinquent mortgages or in foreclosure at the current rate of foreclosure sales). As compared to 2008, the current average loan in foreclosure is 2.6 years past due, (1.9 more years than 2008).

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