One question that has dogged the mortgage industry during the past year is why more borrowers aren't taking advantage of historically low interest rates and refinancing their mortgages. Are lenders doing a poor job of marketing refinancing options to consumers? Are borrowers too afraid that they'll be declined due to tighter lending standards?
As of September, there were at least 7.4 million 30-year mortgages that could benefit from refinancing, according to Black Knight's Mortgage Monitor Report. In fact, more homeowners are eligible for refinancing today compared to one year ago, due to the fact that rising home prices have brought many homeowners out from underwater.
More than half of all borrowers now have 30% or more equity in their homes, according to the report. What's more, only about 8% of all homeowners with a mortgage are currently underwater – down from 33% at the end of 2011 to reach the lowest level since 2007. As of September, home prices had increased for 28 consecutive months.
In addition, recent reductions in the average 30-year mortgage interest rate have expanded the population of borrowers who could benefit from refinancing by 1.4 million, or nearly 25%, according to the report.
‘Before the most recent reductions in the average 30-year mortgage interest rate, approximately six million borrowers met broad-based 'refinancibility' criteria,’ says Trey Barnes, senior vice president of loan data products for Black Knight, in a statement. ‘These criteria assume loan-to-value ratios of 80 percent or below, good credit, non-delinquent loan status and current interest rates high enough that borrowers have an incentive to refinance. In light of where rates are today, and looking at borrowers with current notes at 4.5 percent and above, that population has now swelled to 7.4 million – almost a 25 percent increase.’
Barnes adds, however, that this is ‘a relatively conservative assessment â�¦ as those with current rates of 4.25 to 4.5 percent could arguably benefit from refinancing as well. That group adds another 1.7 million borrowers to the population.’
The report also looks at currently active home equity lines of credit (HELOCs), and, based on estimated 10-year draw periods, finds that only 7.74% of active HELOCs had begun amortizing entering 2014.
Through 2018, nearly an additional 80% of HELOCs will end their draw periods, resulting in average payment increases (or ‘payment shock’) of $262 per month.
As Black Knight points out, the most effective way of avoiding payment shock is to refinance a HELOC into a new loan or line of credit. Unfortunately, nearly 30% of HELOCs set to reset through 2018 are either in negative equity or near negative equity positions, making refinancing problematic.
According to the report, the total U.S. loan delinquency rate in September was 5.67%, a decrease of 3.90% compared to August. The total foreclosure presale inventory rate was 1.76%, a decrease of 2.20% compared to August.
States with the highest percentage of delinquent loans in September included Mississippi, New Jersey, Louisiana, New York and Florida.
States with the lowest percentage of delinquent loans included Minnesota, Montana, Colorado, South Dakota and North Dakota.
States with the highest percentage of seriously delinquent (90-plus days or more overdue) loans included Mississippi, Alabama, Rhode Island, Louisiana and Massachusetts.