Black Knight: Prepayment Activity Has More Than Doubled During Past Four Months


Spurred mainly by lower mortgage interest rates, prepayment activity has more than doubled over the past four months to reach the highest level since late 2016.

According to Black Knight’s most recent First Look report, prepayment activity jumped 24% in May alone.

And in the firm’s Mortgage Monitor report, released this week, Ben Graboske, president of Black Knight’s data and analytics division, says the trend toward faster prepayment speeds is likely to continue in the months to come.

“Overall, prepayment activity – largely driven by home sales and mortgage refinances – has more than doubled over the past four months,” Graboske says ion a statement. “It’s now at the highest levels we’ve seen since the fall of 2016, when rates began their steep upward climb. 

“While we’ve observed increases across nearly every investor type, product type, credit score bucket and vintage, some changes stand out,” Graboske says. “For instance, prepayments among fixed-rate loans have hewed close to the overall market average, rising by more than two times over the past four months. However, ARM prepayment rates have now jumped to their highest level since 2007 as borrowers have sought to shed the uncertainty of their adjustable-rate products for the security of a low, fixed interest rate over the long haul.”

Prepays among the 2018 vintages have jumped by more than 300% over the past four months and are now nearly 50% higher than 2014, the next highest vintage, Black Knight’s data shows.

Should mortgage rates fall more – or at least remain stable – it will likely lead to increased refinance activity which, in turn, will continue to push up prepayments.

“As of June 27, there were 1.5 million refinance candidates from the 2018 vintage alone, accounting for one of every six such candidates in the market, matching the total from the 2013-2017 vintages combined,” Graboske explains. “All in all, some 8.2 million homeowners with mortgages could now both benefit from and likely qualify for a refinance, including more than 35 percent of those who took out their mortgages just last year.

“Early estimates suggest closed refinances rose by more than 30 percent from April 2019, with May’s volumes estimated to be three times higher than the 10-year low seen in November 2018,” he adds. “Given that interest rates have fallen further from May to June – and that we’ve yet to see the calendar year peak in terms of housing turnover related-prepayments – we may very well continue to see rising prepayment activity again in June’s mortgage data.”

Black Knight’s Mortgage Monitor report for May also looks at tappable equity and finds that although tappable equity decreased in the third and fourth quarter, due to the slowdown in home price appreciation, it increased again in the first quarter.

Nearly 44 million homeowners with mortgages have more than 20% equity in their home, according to Black Knight’s data.

With a combined $5.98 trillion, that works out to an average of $136,000 per borrower with tappable equity.

While tappable equity is nearing last summer’s all-time high of $6.06 trillion, and will likely surpass that peak as home prices rise seasonally over the summer months, the annual growth rate has slowed considerably in recent quarters.

The annual growth rate of tappable equity slowed to 3% in the first quarter, down from 5% in the prior quarter and 16% one year ago, as slowing home prices – especially in the nation’s most expensive markets – have curbed tappable equity growth. 

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