Mortgage originations dropped to their lowest level in 14 years as of the end of February, but cash deals are keeping home sales volume afloat, according to a report from Black Knight Financial Services.
The decline was led by a fall in the volume of Home Affordable Modification Program originations, as well as a drop in the share of government loan originations.
Despite the mortgage originations decline in February—which continues the industry trend since mid-2013—residential real estate sales have remained steady due to investor activity and a substantial number of cash transactions.
Total transaction levels were flat on a year-over-year basis through February, as traditional sales rose by almost 15% and the share of distressed transactions continues to decrease, the Jacksonville, Fla.-based analytic firm said in its Mortgage Monitor Report.
Of the nearly 300,000 sales that occurred in February, cash sales accounted for approximately half of this total, Black Knight said.
"Credit standards have shown little sign of easing—only about 30% of 2013 loans went to borrowers with credit scores below 720—which indicates that significant opportunity to expand mortgage origination activity is available, if risk appetites allow," said Herb Blecher, senior vice president of the data and analytics division at Black Knight Financial Services.
The report also revealed that modification activity was near post-crisis lows at the end of 2013. However, changes to HAMP regulations are leading to more modifications early this year.
"As industry modification efforts have matured, far fewer borrowers are experiencing redefaults than in the early years post-crisis," Blecher added.
"Of course, more than 95% of the roughly 2.5 million interest rate reduction modifications still face rate resets, with many of these set to begin adjusting this fall. As these are controlled resets, we do not expect drastic changes in monthly mortgage payments at first, but will monitor these loans closely to assess the level of risk."