Black Knight: ‘Refinanceable’ Population Shrinks While ‘Tappable’ Equity Grows

Approximately 5.2 million borrowers could qualify for, and benefit from, refinancing at today's interest rates, a report from Black Knight Financial Services finds.

Of those borrowers, about 2.4 million could save $200 or more per month, according to the firm's Mortgage Monitor Report.

However, as the report shows, the number of ‘refinanceable’ borrowers is shrinking – not only because of rising rates but also because many of the homeowners who qualify for refinancing have already done so.

‘Looking at current interest rates on existing 30-year mortgages and applying a set of broad-based underwriting criteria, we found that there are still approximately 5.2 million borrowers that make good candidates for traditional refinancing,’ says Ben Graboske, senior vice president of data and analytics for Black knight, in a statement. ‘Of course, that's down from over 7 million as recently as April 2015, when interest rates were below 3.7 percent.

‘If rates go up 50 basis points from where they are now, 2.1 million borrowers will fall out of the running; a 100-basis-point increase would eliminate another million, leaving only 2 million potential refinance candidates, the lowest population of refinance candidates in recent history,’ Graboske says. ‘That said, of those that could likely qualify for and benefit from refinancing today, some 2.4 million are looking at potentially saving $200 or more on their monthly mortgage payments post-refinancing. Again, this is a very rate-sensitive population: after a 50-basis-point rise in rates, a million borrowers would lose out on those savings.

The report also shows that, due to rising home prices, the amount of ‘tappable’ equity in borrowers' homes as of December stood at $4.2 trillion – an increase of $600 billion compared with December 2014.

To arrive at the amount of ‘tappable’ equity available on each home with a mortgage Black Knight used an upper limit of 80% current combined loan-to-value (CLTV), including first and second liens.

‘In total, we're looking at over 37 million borrowers with current CLTVs below 80 percent that have an average of $112,000 equity available to tap in their homes – an increase of 3.1 million from just a year ago,’ Graboske says. ‘Roughly half of that tappable equity belongs to borrowers whose first-lien mortgages have current interest rates higher than today's 30-year rate – making them potential candidates for cash-out refis – but the other half are under four percent. While it's not a hard and fast rule that borrowers won't refinance into a higher rate in order to tap available equity – 23 percent of cash-out refi borrowers over the past six months did just that – for the most part, as rates rise, HELOCs will continue to become more popular to homeowners looking to tap available equity.’

Black Knight's data shows that HELOC originations as of December had increased 35% compared with December 2014.

In fact, as of December, the average HELOC line amount had reached its highest level since Black Knight began tracking this data back in 2005.

However, while HELOC line amounts may be at 10-year highs, initial utilization rates – a key HELOC risk factor – are near 10-year lows, the firm warns.

In addition, the average resulting CLTV for borrowers with second-lien HELOCs is 66% – well below the range of 75% to 76% seen during the bubble era.

In another sign of the segment's relatively low risk level, average credit scores on HELOC originations remain near record highs (780) in December, with nearly 70% of lines going to borrowers with scores of 760 or higher.


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