Due to stricter lending standards resulting mainly from increased investor and regulator oversight, mortgages originated in 2013 are proving to be the best performing on record, according to Black Knight Financial Services' (formerly Lender Processing Services) Mortgage Monitor Report for November.
‘Heightened credit standards have resulted in  being the best-performing vintage on record,’ says Herb Blecher, senior vice president of Black Knight Financial Services' Data & Analytics division, in a release. ‘Even adjusting for some of these changes, such as credit scores and loan-to-values, we are seeing total delinquencies for 2013 loans at extremely low levels across every product category.’
According to the report, the total U.S. loan delinquency rate in November increased 2.63%, compared to October, to reach 6.45% of all loans.
The foreclosure presale inventory rate fell 1.72% to reach 2.50% of all loans.
States with highest percentage of non-current loans include Mississippi, New Jersey, Florida, New York and Louisiana. States with the lowest percentage of non-current loans include Colorado, Montana, Arkansas, South Dakota and North Dakota.
The report finds that non-agency participation in the mortgage market is on the rise.
‘While overall volumes are down, we are seeing an increased proportion of the market being supported by non-agency (vs. government) lending – with the share nearly doubling as compared to 2010,’ Blecher says.
In addition, second lien home equity loan origination volume has more than doubled.
‘Although tighter credit requirements, coupled with interest rate increases, have helped drive originations down to their lowest level since 2010, thanks to increasing home prices, we have seen a significant increase in home equity lending,’ Blecher notes. ‘While first mortgage originations are almost half the levels as one year ago, total home equity lending, including loans and lines, has increased by 70%, and originations of second lien home equity loans have more than doubled.’
What's more, purchase loans now total more than 50% of originations – with a large share of those being jumbo loans. Blecher says in the first lien market, there has been a 75% year-over-year increase in the share of non-agency jumbo prime lending.
‘Notably, nearly all of these jumbo loans have been originated with no mortgage insurance, which may indicate an increased appetite for risk, as well as an opportunity to expand credit criteria, for originations within the private market,’ he says.
Although refinances have fallen considerably due to rising interest rates, stricter lending standards means fewer homeowners now qualify for refinancing. In fact, the report finds that the number of ‘refinancible’ properties now stands at fewer than 6 million – a decrease of about 4 million since the end of 2012.
Today, just 5.9 million loans meet broad-based refinance criteria, including loan-to-value ratios of 80% or less; credit scores of 720 or higher; current payment status; and interest rates higher than the prevailing interest rate, the report states.
However, loosening of credit standards, even slightly, could have a significant effect. For example, lowering the credit score criteria to 700 increases the refinancible population by almost 17%, or an additional 1 million loans.
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