“However, it’s important to remember that we’ve also seen prepayment speeds – which are historically a good indicator of refinance activity – decline 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. The last time interest rates rose as much as they have over the past few months, we saw cash-out refinances decline by 50 percent, but rate-term refinances decline by 75 percent. 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. Additionally prepayment models will need a stronger focus on housing turnover as purchase transactions become a larger fraction of total prepayments.”
Black Knight looked more closely at the nearly 40 percent decline in prepayment speeds thus far in 2017, finding varying degrees of impact by investor category, loan vintage and borrower credit score. While the GSE, FHA/
As was reported in Black Knight’s most recent First Look release, other key results include:
MS, LA, AL, WV, NJ
*Non-current totals combine foreclosures and delinquencies as a percent of active loans in that state.
**Seriously delinquent loans are those past-due 90 days or more.
Totals are extrapolated based on
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