Despite Record Low Mortgage Originations, "Significant Opportunity to Grow"

BlackrnKnight Financial Services said that mortgage originations at the end ofrnFebruary were at the lowest levels in at least 14 years, as far back as therncompany has kept records.  Still, therncompany’s Senior Vice President of Data and Analytics said real estate salesrnhave remained relatively steady, thanks to the number of cashrntransactions.  </p

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HerbrnBlecher explained in the most recent edition of Black Knight’s Mortgage Monitor, “February’s datarnshowed the continued trend of declining origination activity we’ve beenrnobserving since mid-2013, with monthly originations falling to their lowestrnrecorded point since at least 2000.  Inrnspite of this decline, residential real estate sales have remained strong duernat least in part to investor activity and the fact that cash sales account forrnalmost half of all transactions. In addition, while total transaction levelsrnwere flat on a year-over-year basis, traditional (orrn”non-distressed”) sales were up almost 15 percent from last year asrnthe share of distressed transactions continues to decrease.” </p

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Blecherrnsaid that the steady resolution of distressed loan inventories has led to a significantrndecline in loan modifications through 2013 and the year ended with near post-crisisrnlows although changes to the FHA version of the Home Affordable ModificationrnProgram (HAMP) have increased modification activity in the first months of thisrnyear.  </p

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He notedrnthat the industry’s modification efforts have matured and fewer borrowers arernre-defaulting that in earlier years.  Herncautioned however that, “More than 95 percent of the roughly 2.5 millionrninterest rate reduction modifications still face rate resets, with many ofrnthese set to begin adjusting this fall. As these are controlled resets, we dornnot expect drastic changes in monthly mortgage payments at first, but willrnmonitor these loans closely to assess the level of risk. We do see that, evenrnafter modification, borrower equity continues to play a significant role, withrnre-default rates approximately 30 percent higher for underwater borrowers.”</p

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Therncompany said that prepay speeds are also signaling further drops in the volumernof refinancing originations.  The decreasingrnshare of government originations has been largely driven by a sharp drop in thernHome Affordable Refinance Program (HARP) which is aimed at refinancing existingrnFannie Mae and Freddie Mac mortgages.</p

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Therncompany said that credit standards have shown no signs of loosening.  Less than one-third of mortgage originationsrnare taking place among borrowers with credit scores below 719 and less than 10rnpercent among borrowers with scores under 659. rnBlecher pointed out that this indicates that there is significantrnopportunity to expand mortgage origination activity if risk appetites allow.”</p

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The Monitorrnalso looked at the impact of new Consumer Financial Protection Bureaurn(CFPB) rules which went into effect in January and noted a sharp shift in therntiming of foreclosure starts.  CFPB rulesrnrequire that a loan be at least 120 days delinquent before a foreclosure can berninitiated and in response foreclosure starts at 90 days have all butrndisappeared.  At the same time starts atrnfour months have risen over 100 percent since December.</p

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At thernsame time, foreclosure sales hit the lowest levels since 2007. With fewer loansrnin the foreclosure process, these numbers will continue to decline, but thernresult has been an increase in pipeline ratios (the time necessary to clearrnthrough the backlog of loans either seriously delinquent or in foreclosure atrnthe current rate of foreclosure sales). The average loan in foreclosure is now 2.6 years past duern(vs. 0.7 years in 2008)

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