Prepayment activity drops to another record low as mortgage rates top 7%

While the national delinquency ticked up in October, new delinquency inflow remained below pre-pandemic levels

Prepayment activity fell to another record low in October amid mortgage rates topping 7% and refis drying up. Black Knight expects that the steep declines in rate lock volume and seasonality factors point to further declines in prepayment activity.

Prepayment dropped 16.5% to a single-month mortality rate of 0.48%, well below the previous record of 0.55%, according to Black Knight’s October mortgage performance statistics report.

“While this is obviously a challenging environment from an origination perspective – the refi market is essentially nonexistent at this point – it also tends to increase the value of mortgage servicing rights on older loans with lower rates,” Andy Walden, vice president of enterprise research and strategy at Black Knight, said. 

Rate lock volume dropped by more than 60% in October year over year as it struggled under the weight of high mortgage rates, which closed out October at 7.06%. The refinance market is also nearing the bottom. Cash-out refis are now down 83.6% compared to October 2021, and rate/term refis have dropped by a staggering 92.6% year over year, according to a separate Black Knight report. 

The national delinquency rate, which was near an all-time low in September, rose 4.5% last month to 2.91%. Florida led the jump in new early delinquencies, with the state delinquency rate rising 53 basis points to 3.42% — offering an initial indication of Hurricane Ian’s impact. 

“A third of October’s delinquency rate increase was driven by the anticipated impact of Hurricane Ian,” Walden said. “Given the rise in new delinquencies was observed in non-hurricane-impacted areas as well, we will be keeping a close eye on mortgage performance in coming months to see how the situation develops.”

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Black Knight noted that despite a nearly 10% jump in the number of homeowners who were a single payment past due in October, new delinquency inflow remained below pre-pandemic levels.

Loans 60 days past due ticked up 2.9% nationally, while those delinquent by 90 or more days saw continued improvement, inching down another 1.5% in October.

Foreclosure starts were initiated on 4% of existing serious delinquencies in October, up slightly from September’s 3%, but still less than half the rate seen in the years leading up to the pandemic.

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