Mortgage prepayment rates spiked in August to levels above those reached in the mini refinance waves of 2009 and 2010, hitting their highest levels since 2005, according to analytics firm Lender Processing Services (LPS).
An analysis by the firm reveals an increase in prepayment activity across the entire combined loan-to-value continuum.
"While those loans with equity, particularly 80% CLTV and below, have much higher prepayment speeds, the impact of the Home Affordable Refinance Program was also clear," LPS Senior Vice President Herb Blecher said.
Loans with a CLTV of more than 120% saw the greatest uptick — a 65% increase for the year to date. Blecher said it’s becoming evident that loans originated in 2007 and earlier have diminished prospects for conventional refinancing opportunities. Fewer than 30% of these vintages remain both active and current and, on average, they are marked by larger negative equity positions and lower credit scores.
“That said, HARP might yet represent a viable refi option for a good portion of this pool,” Blecher said, referring to the government's Home Affordable Refinance Program.
August foreclosure inventory remained more than eight times the 1995 to 2005 pre-crisis period, despite national foreclosure inventory dropping to the lowest point since October 2010.
The national foreclosure average, LPS points out, masks the stark difference between judicial and nonjudicial foreclosure states. In judicial states, foreclosure inventory was at a near-record high of 6.49% in August, despite a 14% month-over-month increase in judicial state foreclosure sales. In nonjudicial states, the foreclosure inventory rate is 2.28%.
Overall, foreclosure sales were up 12% nationally in the month, but remain 33% below their September 2010 peak. Click on the chart below for a state comparison of delinquencies and foreclosures, provided by LPS.