The firm's Mortgage Monitor Report shows that cash-out refinance volumes rose almost 70% in the second quarter compared with the second quarter of 2014.
‘While this is the highest volume in cash-out refinances we've seen in five years, it's still nearly 80 percent below the peak seen in the third quarter of 2005,’ says Ben Graboske, senior vice president of Black Knight Data & Analytics, in a statement. ‘Even so, it's clear that borrowers have been capitalizing on the increased equity available to them. As we reported in last month's Mortgage Monitor, total equity of mortgage holders has risen by about $1 trillion over the last year, and 'tappable' equity stands at $4.5 trillion.’
Graboske says, as of August, borrowers who were taking out second mortgages were pulling out an average of $67,000 of equity through cash-out refis, ‘nearly the levels we saw back in 2006,’ Graboske says.
‘What's really interesting though, is that even after pulling out that equity, resulting average loan-to-value (LTV) ratios are at 68 percent – the lowest level we've seen in over 10 years,’ he adds. ‘During this same time span, we've seen second-lien HELOC lending rise, albeit at a lesser rate; that volume is up 40 percent from last year. However, as interest rates rise, we could see an increase in HELOC lending and corresponding slowing in first-lien cash-out refis, as borrowers will likely want to hang on to lower rates for their first mortgage while still being able to tap available equity.’
In its analysis of refinance transactions compared with prior loans, Black Knight also found that the distribution of cash-out refinances is highly concentrated geographically, with over 30% of all such transactions occurring in California alone. Texas is second among states in terms of cash-out refinance volume, at just 7% of the nation's total.
Borrowers who refinanced in the second quarter saved an average of $136 per month, according to Black Knight. That's the lowest such reduction in nine years. What's more, they were able to reduce their interest rate by an average of just over 1%, the highest rate reduction in five years.
‘These low averages are primarily due to the fact that borrowers refinancing are either lower unpaid balance (UPB) borrowers that haven't yet taken advantage of low rates (and who will see lower monthly savings), or higher UPB borrowers that are taking advantage of low rates for a second or third time, and so are seeing incremental savings as compared to earlier reductions,’ Graboske says.
Black Knight also observed increased interest among borrowers in securing term reductions through refinancing, with 34% of rate/term refinances in the second quarter, including a term length reduction.
As reported previously, Americans now have the highest average level of total home equity since 2007 – up nearly $1 trillion since last year. The average borrower has approximately $19,000 more equity available than one year ago.
Of that equity, about 59% is ‘tappable’ based on an 80% combined LTV (CLTV) limit.
Black Knight also takes an initial look at the increased foreclosure timelines introduced by Fannie Mae and Freddie Mac, and the potential impact those extensions have had on compensatory fee exposure. In addition to the 34 states where extensions have been introduced, the compensatory fee moratorium currently in place in New York, New Jersey, Massachusetts and Washington, D.C., was extended from June until Dec. 31, 2015.
New York and New Jersey alone carry two-thirds of the country's compensatory fee exposure, even though these states only account for 27% of active government-sponsored foreclosure inventory. All totaled, the states covered by the existing moratorium account for 74% of remaining compensatory fee exposure, and the foreclosure timeline extensions result in roughly a 38% reduction of gross compensatory fee exposure in non-moratorium states.
Lifting the moratorium – with timelines remaining as they stand now – would result in nearly a quadrupling of mortgage servicers' compensatory fee exposure, according to Black Knight.