Prepayment activity hits 10-year low as mortgage refinancing decreases

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Continual declines in the refinance share of mortgage originations led to prepay rates dropping to their lowest levels since 2009, according to Black Knight.

Prepayments are down 33% year-over-year and 15% from October, while the refinance index keeps falling along with overall applications.

"In fact, through the third quarter of 2018, refinances made up just 36% of mortgage originations, an 18-year low," Ben Graboske, executive vice president of Black Knight's data and analytics division, said in a press release.

"As refinances decline, the purchase share of the market rises correspondingly. So now, in the most purchase-dominant market we've seen this century, we need to ask whether the shift in originations will have any impact on mortgage performance," Graboske continued.

The diminished population of refinanceable homeowners plays a major role in fueling both the waning prepayments and refinancing.

"As recently as last month, the size of the refinanceable population fell to a 10-year low as interest rates hit multiyear highs," said Graboske. "Rates have since pulled back, with the 30-year fixed rate falling to 4.55% as of the end of December. As a result, some 550,000 homeowners with mortgages who would not benefit from refinancing have now seen their interest rate incentive to refinance return. Even so, at 2.43 million, the refinanceable population is still down nearly 50% from last year."

On the distressed loan front, delinquencies continued their gains in year-over-year health. November's delinquency rate dropped to 3.71% from 4.55% the year prior. However, it was a rise of 7 basis points from October.

Seriously delinquent mortgages — those late in payment by 90 days or more — dropped to 1.5% from 1.97% in November 2017, a change of 23.81%. Although they did inch up from last month's rate of 1.48%.

The foreclosure rate held at 0.52% for the third consecutive month, down from 0.66% a year ago — a year-over-year drop of 21.95%. November amassed 45,200 foreclosure starts, down from 47,800 year-over-year and from 50,600 in October.

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Refinance Delinquencies Purchase Mortgage rates Originations Black Knight