Prepayment rate hits 16-year high as serious delinquencies spike
As interest rates tumbled throughout July, prepayments climbed to the highest monthly rate since 2004.
July's prepayment activity reached 2.73%, up from 2.65% in June and nearly double the 1.43% rate of the year before.
"Record-low mortgage interest rates have driven strong volume in the refinance market and boosted the buying power of potential homebuyers, both of which contributed to this month's 16-year high for prepayment activity," Andy Walden, economist and director of market research for Black Knight, said in a statement to National Mortgage News.
Looking ahead, the prepayment activity should move in tandem with mortgage rates, according to Walden.
"While today's still near-record low rates are keeping strong upward pressure on prepayment speeds, we'll be facing headwinds toward the end of 2020 from seasonal slowing in home sale activity," he said. "We'll also be looking for signs of any potential impact from the recent 50-basis-point fee on GSE refinance originations, though that still remains to be seen," Walden added.
On the other side of the spectrum, data on outstanding mortgages provided both good and bad news. The delinquency rate — which does not include loans in foreclosure — fell to 6.91% from June's 7.59% but stands nearly twice as high as July 2019's 3.46%.
Seriously delinquent borrowers — those late on their payments for 90 days or more but not yet in foreclosure — continued a pace of significant growth in July. Properties in serious delinquency rose to 2.25 million from 1.87 million in June and 444,000 year-over-year. While overall delinquencies keep decreasing as the economy reopens, many borrowers still face financial hardship and will miss payments.
Loans at least 30 days late on their payment or already in foreclosure at the end of July dropped to 3.88 million from 4.23 million in June but increased from 2.07 million annually.
Foreclosure inventory declined to 190,000 — the lowest level since Black Knight began recording this metric in 2000 — from 192,000 in June and 258,000 the year prior. The total foreclosure presale inventory rate held at 0.36% month-over-month and decreased from 0.49% year-over-year.
However, foreclosure starts climbed once again as taxes and homeowner fees aren't under moratorium. Total foreclosure starts jumped to 9,900 from 5,900 in June while coming way down from 39,200 a year ago.