Change in Store for Mortgage Markets?

Total delinquencies were down 3.3% month-over-month in August and down 9.7% year-over-year for the month. Seriously delinquent (90 days or more) loans and foreclosures are down 5.6% since July and 26.2% compared with August 2012. Foreclosure starts also fell in August, by 4.7% month-over-month and 46.5% year-over-year. The 12-month low for total delinquencies is May’s 6.08%.

The continued decline in non-current loans is good news, of course, but more interesting is what is happening since mortgage loan rates began climbing in May of this year. For one thing, loan pre-payments are down 30%, indicating that the percentage of borrowers now holding mortgages with interest high enough for a refinancing to make financial sense has fallen sharply.

LPS notes that refinancing now makes sense for less than half of all borrowers. Since the end of 2012, the number of refinance-eligible borrowers has dropped from 10 million to 5.7 million, as borrowers jumped on the refinancing bandwagon in the first part of this year.

What is beginning to make sense for some borrowers, however, are home equity loans. Home prices are now at four-year highs, and homeowners who refinanced in the past few years are likely to have accumulated more equity in their homes. LPS notes:

Based upon LPS’ analysis of historical borrowing patterns and home value trends, it is possible that we could see an increase in second-lien borrowing among those who have locked in their first mortgages at very low rates and who wish to tap their equity without refinancing into a higher rate.

The five states with the highest percentages of non-current loans are Florida, Mississippi, New Jersey, New York and Maine. The five states with the lowest percentages are North Dakota, South Dakota, Wyoming, Alaska and Montana.