Rising Rates Plus Rising Equity May Spur HELOC Demand

Three areas drew the focus of the Lender Processing Servicesrn(LPS) August Mortgage Monitor released today: prepayment activity andrnrefinance opportunities, home price improvement and home equity potential, andrnforeclosure sales and pipeline update.</p

LPS said that rising mortgage interest rates caused the prepayment rates,rnhistorically a good indicator of refinancing activity to decline sharply inrnAugust. The monthly prepayment rate has dropped by about 30 percent since May torna 1.40 percent rate in August as interest rates rose 100 basis points over thernsame period. </p

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While origination overall and originations for refinancing have bothrndeclined with the rise in rates the share of refinancing going to the HomernAffordable Refinance Program (HARP) has increased.  In May, the last month for which data isrnavailable, HARP accounted for 30 percent of all refinancing.  This was the highest share the program hasrncaptured since its inception with the exception of an anomaly in mid-2012 when secondaryrnmarket mechanics allowed lenders to process a backlog of HARP loans.</p

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The rise in rates has shifted about<b50 percent of the refinancible population "out of the money" for refinancing.rnLPS estimates that nationwide about 5.7 million homes now have what it calls “refinanciblerncharacteristics.  In December 2012 itrnestimates there were approximately 10 million such loans.    </p

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LPS Senior Vice President Herb Blecher said that the decline in existingrnloans with interest rates high enough to make refinancing a financiallyrnsensible option could actually translate into opportunity for the home equity loanrnand lines of credit market.  “Whilernhigher interest rates may certainly have the effect of tamping down refinancernactivity, they may actually wind up contributing to a new appetite for homernequity loans among homeowners,” he said. rn”After bottoming out at the beginning of 2012, home prices are nowrnat their highest levels since 2009, and borrowers who bought or refinancedrnwithin the last few years are quite likely to have accumulated additionalrnequity in their homes. Based upon LPS’ analysis of historical borrowingrnpatterns and home value trends, it is possible that we could see an increase inrnsecond-lien borrowing among those who have locked in their first mortgages atrnvery low rates and who wish to tap their equity without refinancing into arnhigher rate.”</p

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<br /This month's Mortgage Monitor also looked at foreclosure pipelines at both thernnational and state levels.   On arnnational level the pipeline has continued to clear both as foreclosure startsrndecline on the front end and lenders accelerated the pace of foreclosures atrnthe back end.  Still some states stillrnhave huge backlogs and in some cases they are continuing to grow.  New York, a judicial state, still has thernlargest pipeline ratio based on the very limited volume of current foreclosurernsales in that state, but certain non-judicial states have seen dramaticrnincreases in the wake of passing foreclosure-related legislation or rulings.rnCalifornia, for example, has seen its pipeline ratio increase nearly 70 percentrnsince that state’s Homeowners Bill of Rights went into effect at the beginningrnof this year and Massachusetts has seen an increase of 136 percent (to 168rnmonths) since a Q2 2012 state Supreme Court ruling slowed the processrnsignificantly there.</p

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<br /<br /As LPS reported in its earlier preview of Monitor data, the U.S. delinquencyrnrate was down 3.31 percent to 6.20 in August and the foreclosure presalerninventory rates declined by 2.66 percent to 5.74 percent. 

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