HARP Demand Prevents Sharper Drop in Prepayments

Rising interest rates had apparently notrnheavily affected prepayment activity and thus, by inference, refinancingrnthrough July Lender Processing Services (LPS) said today.  The company’s Mortgage Monitor for the month found that, while loan originationrnvolume had slowed slightly from May to June, activity overall remained strong.</p

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According to the company’s Data &rnAnalytics Senior Vice President Herb Blecher, prepayment activity (historicallyrna good indicator of mortgage refinances) continues, as it has for some time, tornlargely drive origination volume.   Prepayment speeds have been affected by interestrnrates which have risen sharply over the last couple of months, he said, “However,rneven with that increasing interest rate pressure, July’s monthly prepaymentrnrates are still about where they were this time last year, when rates were atrnhistoric lows. In fact, they are roughly at the same levels as the heights ofrnthe ‘mini refinance booms’ in 2010 — when interest rates were comparable tornwhere they are today — and in 2009, when rates were even higher.” </p

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Blecher said that as rates continue tornclimb we can of course expect both prepayments and associated originations torndecline.  It is notable however, he said,rnthat there was an increase in prepayment activity in July among mortgages with loan-to-valuern(LTV) ratios of 100 percent or more. rnThis indicates continued refinancing through the Home AffordablernRefinance Program (HARP) he said.</p

</prn<p"With that in mind, we also looked at the delinquency rate for what arernlikely to be HARP loans 12 months after origination," Blecher continued.rn"We found that while delinquencies were higher thanrn"traditional" (sub-80 percent LTV) GSE loans — at approximately 1.2rnpercent — this group is performing better than both pre-crisis GSE loans andrnpost-crisis FHA loans (which both averaged 4 percent delinquency rates at 12rnmonths of age). </p

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LPS data shows an overall strongrndownward trend in delinquencies and foreclosures nationwide.  Foreclosure starts in particular have beenrnimproving and, so far this year, are at the lowest level since 2007.  Almost 50 percent were repeat starts,rnindicating that fewer new loans are getting into difficulty and painting anrneven more positive picture than do the numbers alone.  </p

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LPS used its residential transactionrndata to examine trends associated with distressed sales and found they werernalso on the decline.  For the 12 monthsrnending in June distressed sales, including owned real estate (ORE) and shortrnsales were down nearly 30 percent from the 12 months that ended in June 2012 -rnfrom 650,000 to 463,000.  Short sales inrnparticular had declined significantly, down 60 percent from 104,000 in thern2011-2012 time period to 46,000 in 2012-2013. rn</p

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LPS data which was originally released in its “First Look” last month include arndelinquency rate that is now at 6.41 percent, down 3.96 percent from June.  The foreclosure presale inventory rate wasrn2.82 percent in July, down 3.46 percent.

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