September 23rd, 2019 12:17 PM by Richard Sardella MLO.100007700/NMLS 233568
Timely payments and a surge in refinances mean lower foreclosures
Mortgage “performance.” Sounds like a fun financial song and dance, right? If you recall the days of heavy foreclosures, however, it’s no joke, especially to the mortgage servicing industry. And according to experts who monitor such things, mortgage performance has markedly improved.
According to data from First Look at the latest mortgage performance data from actionable analytics company Black Knight, that foreclosure starts hit an 18-year low in August, at 36.2K for the month, down more than 23% from this time last year — the smallest it has been since 2005.
But that’s not all. Mortgage holders are also looking to pay off their homes faster, with prepayments increasing by 5% from July to reach a three-year high, and August’s prepayment rate was up 62% from the same time last year.
According to ATTOM Data Solutions, one in every 2,554 U.S. properties received a foreclosure filing during the month of August. Falling interest rates and a subsequent increase in rate/term refinances has helped to cause this surge in on-time payments and proactive borrowing.
A report in DS News says, “Falling rates and an abundance of refinance candidates were primary drivers behind servicers retaining 24% of all refinancing borrowers – the highest such retention rate since late 2017 – and 30% of rate/term borrowers specifically.” It goes on to say that with interest rates at three-year lows, anecdotal evidence suggests that in recent weeks, mortgage lenders had been inundated with inbound refinance business.
Source: FirstLook, Black Knight, ATTOM Data Solutions, TBWS
How Rates Move:
Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I’m among few mortgage professionals who have access to live trading screens during market hours.
Rates Currently Trending: Neutral
Mortgage rates are trending sideways so far today. Last week the MBS market improved by +35bps. This was enough to move rates lower last week. We saw high rate volatility throughout the week.
This Week's Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest ability to impact mortgage rates this week. 1) The Fed, 2) Trade/Geopolitical and 3) Economic
1) The Fed: The Federal Reserve held four consecutive repo auctions that pumped liquidity into the markets last week and have already started this week with their 5th. We'll hear from a lot of Fed officials this week, and the bond market is focused on QE Talk. This was due to a snippet of Powell's live responses where he had an academic discussion that he would rather use the tool of buying assets instead of negative interest rates (both are bad, he just made a choice of the lesser of two evils). But bank after bank and analyst after analyst has run with predicting what QE 4 will look like and when it will hit (and that it will hit even though that is NOT what Powell said).
2) Trade Talks: October is fast approaching, and the bond markets are focused on any "snippet" of information from the continued "low level" communication between China and the US leading up to the "high level" talks in October. Also, we have Iran/Saudi/Oil and Brexit still all in focus.
3) Economic: The biggest domestic economic release of the week isn't until Friday's PCE (the Fed's key inflation gauge). Second-tier releases like Consumer Confidence and Durable Goods will also get some attention. It's the wave after wave of continued weak economic news out of Europe and Asia that has bond traders worried that a tsunami of global recession will soon reach our shores.
Treasury auctions this week:
This Week's Potential Volatility: Average
Last week we saw a good deal of rate volatility. This week we could see the same. However, on the economic front, we don't have any scheduled releases until Friday that can move rates. Of course, geopolitical concerns continue to be at the forefront of rate markets minds.
If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.
Richard Sardella has been actively managing and providing services in the mortgage industry for over 27 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.
All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.
MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.