Mortgage originations are at their lowest level in nearly 10 years Black Knight Financial Services said today. Mortgage originations fell to 238,000 in February, the last month for which data is available, compared to 358,000 in January and 781,000 12 months earlier. High LTV refinancing, that is GSE Streamline loans and Home Affordable Refinance Program (HARP) loans have driven much of the decline. There were an estimated 35,000 of those loans originated in February compared with 155,000 at their high point in May 2013.
Government-backed loans have shrunk the most with portfolio lending increasing slightly. Private investment in mortgages remains at insignificant levels.
The foreclosure process used in a state - whether it involves the court in a judicial proceeding or allows the seizure of a home without court permission, a non-judicial process - has been blamed for discrepancies among the states in foreclosure timelines and backlogs and wildly varying delinquency statistics. Now Black Knight Financial Services is pointing to another possible offshoot of the judicial process, a higher level of negative equity.
Negative equity, the percentage of homeowners with a mortgage who owe more on that mortgage than the home is worth, has declined to a national rate of about 10 percent from a high of near 35 percent during several periods in the financial crisis. While the rate of negative equity in both judicial and non-judicial states have moved in parallel throughout the last six years, the rate in judicial states has always been higher and is now about 40 percent above that in non-judicial states.
"Two years of relatively consecutive home price increases and a general decline in the number of distressed loans have contributed to a decreasing number of underwater borrowers," said Kosya Gradushy, Black Knight's manager of Loan Data and Customer Analytics. "Looking at current combined loan-to-value (CLTV), we see that while four years ago 34 percent of borrowers were in negative equity positions, today that number has dropped to just about 10 percent of active mortgage loans. While negative equity levels have declined for both judicial vs. non-judicial foreclosure states from the peak of the crisis, non-judicial states are now at just under eight percent, as compared to 13.4 percent in their judicial counterparts. Overall, nearly half of all borrowers today are both in positive equity positions and of strong credit quality - credit scores of 700 or above. Four years ago, that category of borrowers represented over a third of active mortgages.
A decline in negative equity of course usually means an increase in housing prices and Black Knight, in its most recent Mortgage Monitor Report points to another correlation, that between its Home Price Index (HPI) and declining rates of delinquencies in the various states. Where home prices have risen sharply there has been a corresponding drop in delinquencies - or vice versa. Of course those states that are the greatest outliers on both counts - with dramatic price increases and strongly improving delinquency rates - are those that had the most severe downturn in price and the greatest numbers of foreclosures - Arizona, Nevada, California, Georgia, Florida, and so forth.
Black Knight notes that delinquencies fell in March by a greater degree than they have in three years and other indicators are also pointing to a healthier housing market. New problem loans, foreclosure starts, and foreclosures are now at their lowest levels since before the beginning of the housing crises.
Loans in the foreclosure process continue to age. Gradushy said, "Black Knight has also observed the timelines associated with loans in foreclosure continuing to expand over time, reaching an average of 966 days delinquent for those in the foreclosure process. In fact, 55 percent of all loans in foreclosure are now more than two years delinquent -- an all-time high. The average length of delinquency for completed foreclosures is quite comparable at 955 days. However, as a share of total aged inventory, fewer of these loans are completing the foreclosure process. While it may seem counterintuitive, this is actually also indicative of an improving market. As there are fewer new foreclosure starts, not as many new problem loans, declining delinquencies and improving indicators all around, what's left are these loans lingering -- for years -- in the foreclosure pipeline."
Black Knight also found home affordability (calculated as a ratio of mortgage payment to income) better now than it was in the years prior to the housing crisis, though the level of affordability varies by state. At the national level, the mortgage-to-income ratio now stands at 22 percent, whereas in 2006, only four states were below this level. As of March, nearly two-thirds of the country fell below this line: Michigan, Missouri, Indiana and Iowa were the most affordable states, whereas New York and California were the least affordable.
