Black Knight Financial Services mortgage data for February data showed that monthly mortgage originations dropped to the lowest number in at least 14 years.
Real estate sales, they found, have been mainly buoyed by cash investor transactions.
“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,” said Herb Blecher, senior vice president of Black Knight’s Data and Analytics division. “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 sales were up almost 15% from last year as the share of distressed transactions continues to decrease.
Credit standards have shown little sign of easing — only about 30% of 2013 loans went to borrowers with credit scores below 720 — which indicates that significant opportunity to expand mortgage origination activity is available, if risk appetites allow.
“As the inventory of distressed loans continued to resolve during 2013, loan modification activity also declined significantly, ending the year with near post-crisis lows,” Blecher said. “However, new changes to FHA’s Home Affordable Modification Program have increased such activity in the first months of this year. We continue to see that as industry modification efforts have matured, including offering more effective modification types (including HAMP’s interest rate reductions), far fewer borrowers are experiencing re-defaults than in the early years post-crisis.”
More than 95% 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% higher for underwater borrowers,” he said.
Black Knight also examined the impact of the implementation of the Consumer Financial Protection Bureau’s new rules in January and observed a sharp shift in the timing of foreclosure starts.
As the CFPB rules dictate that foreclosure cannot begin until after 120 days of delinquency, the data showed foreclosure starts at the 90-day mark have all but ceased, while four-month delinquency starts have risen over 100% 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).
This has been most pronounced in non-judicial states such as California and Nevada where legislative actions have contributed to the slowdown more significantly over the last several months.
Other key findings include:
- While total real estate transactions were essentially flat Y/Y, non-distressed sales were up almost 15%
- Credit standards have shown little sign of easing — only about 30% of 2013 loans went to borrowers with credit scores below 720
- Loan modification activity ended 2013 near post-crisis lows, but changes to FHA-HAMP regulations have increased such activity in the first months of this year
- Due to more effective loan modification efforts, there have been far fewer re-defaults in recent years, though underwater borrowers are approximately 30% more likely to re-default than those with equity
- More than 95% of the roughly 2.5 million interest rate reduction modifications still face rate resets, with many set to begin adjusting this fall
- Foreclosure sales (completions) hit their lowest level since 2007, resulting in an increase in pipeline ratios (after many months of declines), most pronounced in non-judicial states