Tappable equity is defined as the share of equity available to homeowners with mortgages to borrow up to 80% loan to value against their homes.
Although tappable equity fell last year due to higher interest rates and a decline of home prices, the second quarter of 2019 showed a tappable equity increase of $355 billion. The second-quarter growth rate of 4.2% was slightly above the 3% growth rate seen at the end of the first quarter.
According to Black Knight, a total of $6.3 trillion of tappable equity is held by 45 million U.S. mortgage holders. This is the highest equity volume ever recorded, and a full 26% increase over the mid-2006 peak of $5 trillion.
Black Knight also reported that the delinquency rate fell to 3.46% in July, the lowest rate of any July on record since 2000. Serious delinquencies, 90-days late or more, fell below 445,000 instances for the first time since June 2006.
Another interesting data point is that nearly half of the 45 million homeowners with tappable equity have an interest rate higher than 4.25%, which makes refinancing an attractive option. The report also indicates that 76% of homeowners have a rate above 3.75%, leaving open another group of homeowners who could potentially benefit from refinancing.
This refinance bloc is also a low-risk borrowing group, with Black Knight estimating that 55% of those who have tappable equity have a credit score above 760 and another 16% have a score above 720.
Profits Up While Rates Drop
The Mortgage Bankers Association reported last week that mortgage bankers are earning the highest profits on originations than they’ve seen over the past three years. Their report showed that independent mortgage banks and subsidiaries of chartered banks reported an average profit of $1,675 per loan in the second quarter, up from just $285 of average profit per loan in the first quarter and the highest profit margin since the first quarter of 2016. These numbers are a significant change from the fourth quarter of 2018, where lenders reported losing an average of $200 on each originated loan.
On the rate front, the MBA reported mortgage rates falling to their lowest levels in nearly three years, after holding steady for the past month. According to the latest data released last week by Freddie Mac, the 30-year fixed-rate average fell to 3.49 percent with 0.5% points. That’s a nine-basis-point drop from a week previous and a drop of more than 125 basis points from this time last year. By comparison, the average rate was 4.75 percent in December 2018.
The 15-year fixed-rate average dropped to 3 percent with an average of 0.6 points. It was 3.06% the week before and 3.99% a year ago. The five-year adjustable-rate average also dropped slightly to 3.3% from 3.31 percent a week previous and 3.93% this time last year.
Economists say that a contraction in manufacturing markets and fears over a global recession have placed downward pressure on bond yields, with about half of the experts saying this trend will keep rates low for the foreseeable future.
The MBA says that refinance originations accounted for 60.4 percent of all applications. That’s a decrease of 3.1 percent from the week previous as purchase activity saw a modest gain followed by a pullback on refinancing. Despite the slowdown, refinances are still up 152 percent over last year, and purchase applications are 5% higher.
The lower rates have experts predicting a 15 percent increase in mortgage originations on the year.
Have questions about how these market changes may affect your business? Reach out to our lending experts at Geraci LLP for guidance on how to reposition yourselves as rates continue to decrease and home equity builds.