Refinancing, delinquencies soar in divided mortgage era

By John Gittelsohn | Bloomberg

The U.S. mortgage market shows a widening gap between winners
and losers as affluent borrowers take advantage of record-low rates
while protracted unemployment drives serious delinquencies to their
highest levels since 2010.

About 2.25 million mortgages were at least 90 days late in July,
a 450% increase from pre-pandemic levels and the biggest number
since the global financial crisis, according to industry tracker
Black Knight.

Meanwhile, new mortgage originations reached a record $1.1
trillion in the second quarter. Rates on 30-year home loans slipped
below 3% for the first time in history in July, enabling more
homeowners with the ability to refinance to save hundreds of
dollars a month.

There are still nearly 18 million homeowners with good credit
and at least 20% equity who stand to cut at least 0.75% off their
current rate by refinancing, according to Ben Graboske, president
of Black Knight data and analytics.

“We would expect near-record-low interest rates to continue to
buoy the market,” he said in a statement Tuesday.

The diverging trends illustrate how government intervention is
aiding many financially secure households while the more vulnerable
face mounting threats to their homeownership as the pandemic
continues to batter the U.S. economy. Real estate made up $30.3
trillion, or 24% of total U.S. household wealth, in the first
quarter, according to the Federal Reserve.

“The money is in the homes and people with college education
are still working, but the pain is being�felt where people are
unemployed,†Susan Wachter, professor of real estate and finance
at the Wharton School of the University of Pennsylvania, said in an
interview. “Covid-19 will drive an increase in the already high
income-inequality gap, and wealth inequality, actually, which is
much more extreme.â€

While the unemployment rate fell to 8.4% in August, more than 11
million jobs were still lost in the pandemic, the Labor Department
reported last week. Supplemental benefits for the unemployed of
$600 a week expired in July and Congress has been at an impasse
over a follow-up aid package.

The quarterly jump in new mortgage originations occurred despite
public health measures that limited home showings, appraisals and
in-person document signings. Refinancing made up about 70% of the
new home loans during the period.

Monthly principal and interest payments on a $400,000 mortgage
would be $1,686 at 3%, compared with $1,910 at 4% — an annual
savings of $2,688. The average 30-year mortgage rate was 2.93% last
week, according to Freddie Mac.

Other data reported by Black Knight:

More borrowers with the ability to refinance are using their
equity to get cash. About $44.5 billion in equity was tapped
through cash-out refinancing in the second quarter, the most in
more than a decade.

Markets with the biggest delinquency increases in July were
Miami, Las Vegas, Orlando, New York and New Orleans.

The number of homeowners in forbearance continued to fall last
week and is down by 1 million from its May peak. But the July 31
expiration of extra unemployment benefits means this month “may
provide the true test,†Black Knight said in a Sept. 4

Homeowners with less equity and lower credit quality were more
than twice as likely to have entered forbearance plans. About 11.5%
of loans by the Federal Housing Administration and Department of
Veterans Affairs were in forbearance last week, compared with 5.1%
for Fannie Mae and Freddie Mac borrowers, who have better credit
and more equity in their houses.Related Articles

Source: FS – All – Real Estate News 1
Refinancing, delinquencies soar in divided mortgage