Black Knight Financial Services said that mortgage originations at the end of February were at the lowest levels in at least 14 years, as far back as the company has kept records. Still, the company's Senior Vice President of Data and Analytics said real estate sales have remained relatively steady, thanks to the number of cash transactions.
Herb Blecher explained in the most recent edition of Black Knight's Mortgage Monitor, "February's data showed the continued trend of declining origination activity we've been observing since mid-2013, with monthly originations falling to their lowest recorded point since at least 2000. In spite of this decline, residential real estate sales have remained strong due at least in part to investor activity and the fact that cash sales account for almost half of all transactions. In addition, while total transaction levels were flat on a year-over-year basis, traditional (or "non-distressed") sales were up almost 15 percent from last year as the share of distressed transactions continues to decrease."
Blecher said that the steady resolution of distressed loan inventories has led to a significant decline in loan modifications through 2013 and the year ended with near post-crisis lows although changes to the FHA version of the Home Affordable Modification Program (HAMP) have increased modification activity in the first months of this year.
He noted that the industry's modification efforts have matured and fewer borrowers are re-defaulting that in earlier years. He cautioned however that, "More than 95 percent of the roughly 2.5 million interest rate reduction modifications still face rate resets, with many of these set to begin adjusting this fall. As these are controlled resets, we do not expect drastic changes in monthly mortgage payments at first, but will monitor these loans closely to assess the level of risk. We do see that, even after modification, borrower equity continues to play a significant role, with re-default rates approximately 30 percent higher for underwater borrowers."
The company said that prepay speeds are also signaling further drops in the volume of refinancing originations. The decreasing share of government originations has been largely driven by a sharp drop in the Home Affordable Refinance Program (HARP) which is aimed at refinancing existing Fannie Mae and Freddie Mac mortgages.
The company said that credit standards have shown no signs of loosening. Less than one-third of mortgage originations are taking place among borrowers with credit scores below 719 and less than 10 percent among borrowers with scores under 659. Blecher pointed out that this indicates that there is significant opportunity to expand mortgage origination activity if risk appetites allow."
The Monitor also looked at the impact of new Consumer Financial Protection Bureau (CFPB) rules which went into effect in January and noted a sharp shift in the timing of foreclosure starts. CFPB rules require that a loan be at least 120 days delinquent before a foreclosure can be initiated and in response foreclosure starts at 90 days have all but disappeared. At the same time starts at four months have risen over 100 percent since December.
At the same time, foreclosure sales hit the lowest levels since 2007. With fewer loans in the foreclosure process, these numbers will continue to decline, but the result has been an increase in pipeline ratios (the time necessary to clear through the backlog of loans either seriously delinquent or in foreclosure at the current rate of foreclosure sales). The average loan in foreclosure is now 2.6 years past due (vs. 0.7 years in 2008)
