Number of Borrowers in Negative Equity Drops 13% from 2015

Just 2.8 million borrowers remain in negative equity, a 13% decrease year-over-year, according to a report from Black Knight Financial Services.

During the first quarter, roughly 425,000 borrowers who were once underwater regained equity, Black Knight reported in its Mortgage Monitor for May. While a marked improvement from the peak in 2012, the negative equity rate is roughly five times higher than in 2004.

Jacksonville, Fla.-based Black Knight focused its May report on the equity situation nationwide, in light of its Home Price Index that has documented 48 consecutive months of annual home price appreciation. The company also found that now 38 million borrowers have at least 20% equity in their homes, with the amount averaging to $116,000 in tappable equity per borrower.

Overall, Black Knight noted that tappable equity grew $260 billion in the first quarter.

"It seems borrowers are still being prudent when it comes to drawing upon that equity, though," said Ben Graboske, data and analytics executive vice president at Black Knight, in a news release Monday. "Just $20 billion in equity was tapped via cash-out refinances in 1Q 2016 — roughly one-half of 1% of total available equity. Even so, cash-outs still accounted for some 42% of all refinance activity in 1Q 2016."

Black Knight also studied mortgage prepayment rates, finding that Ginnie Mae prepayments have outpaced all other categories in 19 of the past 24 months. Prepayment speeds on adjustable-rate mortgages were up 8% from last year, but down 4% on fixed-rate loans.

And the ARM share of originations has dropped to its lowest level in three years due to the corresponding decrease in interest rates.

Finally, Black Knight analyzed loan performance for originations to borrowers carrying student loan debt.

Looking back at 2014, the most recent full year of data available to Black Knight, 15% of all active mortgage holders had some student loan debt. Noncurrent rates were 38% higher for borrowers with student loan debt, but when the company compared based on credit scores the difference was less pronounced.

Black Knight also found that borrowers severely delinquent on student loan debts were five times more likely to be delinquent on their mortgages than those who are current on student loan debt and six times more likely than the average borrower without any student loan debt. But the company cautioned that fewer than 1% of all active mortgages were made to borrowers severely delinquent on their student loans.

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