Knight has again taken a look at the number of Americans who could benefit
significantly from refinancing their first mortgages, but the facts are
shifting almost faster than they can report them. In its current Mortgage
Monitor, the company reports that 90 percent of homeowners who have
sufficient equity in their homes and the qualifying credit to refinance could
improve their current interest rate.
Sufficient, or what the company
calls “tappable” equity is defined as allowing a refinance while keeping the
loan-to-value (LTV) ratio at 80 percent or lower. That equity rose 8.0 percent
from the first quarter of 2019 to the same quarter this year. The total is a
record high of $6.5 trillion. Despite rising mortgage delinquencies, about 13.6
million homeowners still meet broad eligibility requirements to refinance.
Refinance candidates are those who
could lower their mortgage interest rate by 75 basis points or more. Mortgage
rates as of June 18 were at a record low of 3.13 percent. At those rates, the
13.6 million refinance candidates could save an average of $283 per month on
their mortgage payment. If all eligible candidates were to refinance their
mortgages, they would see an aggregate savings of $3.9 billion per month,
representing a potentially significant and much-needed stimulus to the economy.
Of these, some 4.6 million could save at least $300 per month on their mortgage
payments, while 2.6 million would be able to save at least $400 per month. More
than three quarters of those refinancible homeowners have rates above 3.5
In his commentary in the Monitor,
Black Knight Data & Analytics President Ben Graboske noted that, “Mortgage
rates fell to a record low of 3.13% on June 18 according to Freddie Mac’s
Primary Mortgage Market Survey; if they were to tick down just one basis point,
that population would swell by 20% to 16.3 million, an all-time high for
After the current Monitor went “to
press,” that is precisely what happened. Freddie Mac reported rates down again
to yet another record low of 3.07 percent with the expected increase in the
refinance pool. Freddie Mac has predicted that rates will fall below 3.0
percent by year-end.
Homeowners are taking advantage of
the rates. Refinancing in the first quarter rose to a 7-year high, but homeowners
are leaving money on the table. The share of cash-out refinances dropped to 42
percent in the first quarter, the first decline since early 2019. The share was
roughly half of that at the end of 2018 and the smallest share since the first
quarter of 2016. The $38.7B in equity withdrawn via cash-outs in the first
quarter was 8 percent lower than in the fourth quarter of 2019.
Black Knight says current rate lock
data indicates that the pattern is likely to continue. Through June 19, cash-out
refi locks were down 6 percent from the comparable time frame in Q1 while rate/term
locks were up 13 percent in spite of the massive wave of refinances that took
place in early March.
There has also been a rise in credit
scores among those locking in cash-out refinances, up 24 points from January
through June. Black Knight says this may indicate that credit standards are tightening
for those mortgages, and one reason their volume has been falling. However, the
company also points out that scores commonly rise with falling rates as high-quality
borrowers tend to be quick to take advantage of falling rates. Credit scores
have also rising among both purchase and rate/term locks by 11 and 22 points,
Still, there is a pandemic out there
and its impact is being felt. Last month’s Monitor reported that the
population of qualified refinance candidates had been reduced by about 4
percent due to a new delinquency. Black Knight’s weekly forbearance report for
June 30 showed the first increase in those plans after three weeks of decrease
and that 8.8 percent of active mortgages are in a plan. Further, the percentage
of homeowners in plans who have continued to make their payments has fallen
each month – from 46 percent in April to 30 percent in May. As of June 23, only
22 percent of June payments had come in.
Nearly half of outstanding
forbearances were scheduled to expire in June so the June payment was the last
covered under the initial period. Another 25 percent will expire in July. The
plans were set up with an initial three-month term although six-months is
authorized by the CARES Act and homeowners can request for 12 months for government-backed
This means servicers may have been
reviewing more than two million plans throughout June to see if extensions are
needed. While this will provide a heavy workload for servicers, Black Knight
says it will also provide an early look at the roll rates of loans out of
The pandemic and resulting stay-at-home
orders and business closures hit the real estate market hard, and in person
home showings fell by 63 percent in April compared to a year earlier. They are
now rebounding, with volumes as of July 1 up 15.7 percent year-over-year and 12
percent higher than the pre-COVID-19 peak.
Purchase lending has also exploded
(as did the National Association of Realtors Pending Home Sale Index for May).
Purchase rate lock activity hit its highest level of 2020 in the third week of
June, up 60 percent from May and 57 percent from March, previously the strongest
month of the year. Black Knight says this suggests the some of the home sales
and purchase loans lost in March and April may ultimately be recovered.