Black Knight: Millions of 30-year loans could benefit from refinancing

PROVIDENCE – Black Knight Financial Services’ data and analytics division said that at least 7.4 million 30-year loans could benefit by refinancing.
In its latest mortgage monitor report released on Monday, the division said that recent rate reductions have added an additional 1.4 million borrowers to “refinancable” status.
The division also noted that more than half of borrowers have 30 percent or more equity in their homes and that there has been 28 consecutive months of home appreciation since May 2012.
The data is based on the end of September, and the company used its first and second lien mortgage database information, as well as data from its home price index.
Trey Barnes, Black Knight’s senior vice president of Loan Data Products, said in a press release that recent reductions in the average 30-year mortgage interest rate have expanded the population of borrowers who could benefit from refinancing by nearly 25 percent.
“Before the most recent reductions in the average 30-year mortgage interest rate, approximately six million borrowers met broad-based ‘refinancibility’ criteria,” Barnes said.
“These criteria assume loan-to-value ratios of 80 percent or below, good credit, non-delinquent loan status and current interest rates high enough that borrowers have an incentive to refinance. In light of where rates are today, and looking at borrowers with current notes at 4.5 percent and above, that population has now swelled to 7.4 million – almost a 25 percent increase. This is a relatively conservative assessment though, as those with current rates of 4.25 to 4.5 percent could arguably benefit from refinancing as well. That group adds another 1.7 million borrowers to the population,” he continued.
He said Black Knight also examined the “equity situation in America.”
“Due in no small part to 28 consecutive months of home price appreciation since 2012, we’ve seen the share of borrowers with negative equity drop down to just below 8 percent as of July, down from a level of 33 percent at the end of 2011, and to its lowest point since 2007. An additional 8.5 percent of borrowers are in ‘near-negative equity’ positions, with less than 10 percent equity in their homes. However, more than half of all borrowers have 30 percent or more equity, a level not seen in nearly eight years,” he said.
In addition, Black Knight also looked at active home equity lines of credit. Based on estimated 10-year draw periods, it found that 7.74 percent of active home equity lines of credit had begun amortizing entering 2014. Through 2018, nearly an additional 80 percent will end their draw periods, resulting in average payment increases (or “payment shock”) of $262 per month.
Black Knight said the most effective way of avoiding payment shock is to refinance a home equity line of credit into a new loan or line of credit, but nearly 30 percent of these lines of credit are set to reset through 2018 are either in negative equity or near negative equity positions, making refinancing problematic.
Black Knight said the total U.S. loan delinquency rate is 5.67 percent, and the total U.S. foreclosure pre-sale inventory rate is 1.76 percent. Rhode Island remains among the states with the highest percentage of seriously delinquent loans, which means loans that are 90 days or more past due. Louisiana, Massachusetts, Alabama and Mississippi also fall into that category.

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