Black Knight – July Mortgage Monitor: purchase lending hits highest level since 2007 despite continued headwinds from tight lending
– $467 billion in first lien mortgages, including both purchase and refinance loans, were originated in Q2 2017, a 20% increase over Q1 2017, but down 16% from the same time last year
– A 20%, $37 billion quarterly decline in refinances was more than offset by a 57%, $117 billion seasonal increase in purchase lending
– Refinances accounted for 31% of all mortgage originations in Q2 2017, the lowest share since 2000
– Purchase lending is now at its highest level since 2007, but the number of purchase originations lags pre-crisis norms by nearly 30%
– Borrowers with credit scores of 720 or higher accounted for 74% of Q2 2017 purchase loans, as compared to a pre-crisis (2000 – 2003) average of 47%
– 65% fewer purchase mortgages are going to borrowers with sub-720 credit scores than the pre-crisis average
The Data and Analytics division of Black Knight Financial Services, Inc. released its latest Mortgage Monitor Report, based on data as of the end of July 2017. Reviewing second quarter mortgage origination volumes, Black Knight finds that while overall mortgage lending saw a 20% increase over Q1 2017, total volumes were down 16% from Q2 2016. Additionally, although purchase lending hit its highest level in 10 years, the total number of purchase mortgages being originated still falls far below pre-crisis (2000 – 2003) averages. As Black Knight Data & Analytics Executive Vice President Ben Graboske explained, more stringent credit requirements enacted in the wake of the Great Recession may be hampering purchase lending volumes. “We saw positive growth in lending in the second quarter, with $467 billion in first lien mortgages originated,” said Graboske. “While down 16% from a year ago, that marks a 20% increase in mortgage lending over Q1. Drilling down into the make-up of those originations, we see that refinance lending made up just 31% of all Q2 originations – the lowest such share in over 16 years. Refinance volumes were down as well, falling 20% from Q1, but that drop was more than offset by a 57% seasonal rise in purchase lending. Purchase originations totaled $321 billion in Q2 2017; up six% from last year, and the highest quarterly volume since 2007. As a result of growing average loan amounts for purchase originations, the total dollar amount of purchase originations is higher than averages seen from 2000 – 2003, prior to both the peak in home prices and the Great Recession that followed. This is partly due to rising home prices, but also comes as a result of an all-but-total absence of second lien usage for purchases, a shift toward high-dollar/low-risk loans among non-agency lenders and a higher share of cash purchases at the lower end of the market.
“However, the number of purchase loans being originated still lags the pre-crisis average by almost 30%; while overall purchase origination volumes are strong from a total dollar amount perspective, the market still does not appear to be performing at peak capacity. One key cause is the more stringent purchase lending credit requirements enacted in response to the financial crisis. Consider that borrowers with credit scores of 720 or higher accounted for 74% of all Q2 2017 purchase loans as compared to a pre-crisis average of 47%. Today, there are 65% fewer purchase loans being originated to borrowers with credit scores below 720 than in those years. The lack of credit availability for those borrowers is causing a strong headwind for the purchase market. Using 2000 – 2003 averages as a measure, as many as 645,000 purchase loans were not originated in Q2 due to tighter lending standards. To put it another way, the purchase market is operating at less than two-thirds of peak capacity because of these factors.” Additionally, this month Black Knight assessed the impact of the recently announced extension of the federal government’s Home Affordable Refinance Program (HARP) through the end of 2018. As 3.5 million borrowers have already utilized the program and after years of continual home price gains, the HARP-eligible borrower pool is relatively shallow. As of the end of July, there are only approximately 108,000 borrowers that would both meet HARP eligibility requirements and that have at least 75 BPS of interest rate incentive to refinance through the program. HARP eligibility is limited for the 2.5 million active GSE mortgages with current LTVs above 80% due to the requirement that loans have been originated pre-June 2009. Even expanding that to the bottom of the housing market in January 2012 – to include all borrowers negatively impacted by the downturn in home prices during the recession – would only increase the HARP-eligible/incented population by approximately 50,000.
As was reported in Black Knight’s most recent First Look release, other key results include:
- Total US loan delinquency rate: 3.90%
- Month-over-month change in delinquency rate: 2.82%
- Total US foreclosure pre-sale inventory rate: 0.78%
- Month-over-month change in foreclosure pre-sale inventory rate: -2.96%
- States with highest percentage of non-current loans: MS, LA, AL, WV, ME
- States with the lowest percentage of non-current loans: MT, OR, MN, ND, CO
- States with highest percentage of seriously delinquent loans: MS, LA, AL, AR, TN
Is Equifax telling the wrong people they were hacked?
The Equifax security breach impacted a jaw-dropping 143 million US consumers. That’s right, 143 million consumers, meaning the likelihood you or someone you know had their information wrongfully stolen is uneasily high. And to make matters worse, according to this from veteran securities reporter, Brian Krebs, on his Krebs on Security blog, the website (equifaxsecurity2017.com) that the credit bureau set up for consumers to see if their personal information was impacted by the breach, may just be haphazardly telling consumers they were impacted when they weren’t — and perhaps vice versa, too. Krebs proves his case by publishing screen shots. The credit bureau website is also intended as a place for consumers to sign up for credit file monitoring and identity theft protection, which will be provided by Equifax for one year. As Krebs notes, the new website not only drives new clients to Equifax, but also forces them to sign an arbitration clause to get out of being sued later. From the article: “As noted in yesterday’s breaking story on this breach, the Web site that Equifax advertised as the place where concerned Americans could go to find out whether they were impacted by this breach — equifaxsecurity2017.com —
is completely broken at best, and little more than a stalling tactic or sham at worst. In the early hours after the breach announcement, the site was being flagged by various browsers as a phishing threat. In some cases, people visiting the site were told they were not affected, only to find they received a different answer when they checked the site with the same information on their mobile phones. Others (myself included) received not a yes or no answer to the question of whether we were impacted, but instead a message that credit monitoring services we were eligible for were not available and to check back later in the month. The site asked users to enter their last name and last six digits of their SSN, but at the prompting of a reader’s comment I confirmed that just entering gibberish names and numbers produced the same result as the one I saw when I entered my real information: Come back on Sept. 13.”
Equifax remains infuriatingly silent on a lot of the giant debacle, especially since the company said it discovered the unauthorized access on July 29, 2017, and “acted immediately to stop the intrusion.” But, it didn’t immediately inform the public on any of this, waiting nearly two months to say anything. As the public anxiously awaits news on how this impacts them, the Consumer Financial Protection Bureau, the House Financial Services Committee, and the office of New York Attorney General Eric Schneiderman are each launching an investigation into the breach.
CoreLogic – US economic outlook: September 2017
Nonresident foreign buyers purchased about 119,000 homes in the United States from April 2016 to March 2017, according to the National Association of Realtors, or about 2% of all homes sold. The largest number of nonresident buyers were from Canada, the second most from China and third most from Mexico. Buyers from these three nations accounted for 41% of the homes bought by nonresident foreign buyers. Since Canadians were the largest foreign buyer group, with 25,000 homes bought this past year, let’s look at where and why they bought. About 69% of the Canadian population live in the eastern portion of the country, stretching from Ontario to the Atlantic Ocean. This population distribution mirrors the locations in the US where Canadians buy homes, as about 7-in-10 homes were purchased in the eastern US and the rest in the west. Canadians who live in the eastern provinces tend to buy in the southeast of the US, and those in the western provinces buy in the southwest of the US For example, 9-in-10 Canadians who live in Quebec and the Atlantic provinces and 8-in-10 who live in Ontario bought in Florida. In contrast, 8-in-10 Canadians from Alberta and 9-in-10 from British Columbia bought homes in the western US, primarily Arizona, California, and Washington. In the year ending March 2017, 64% of the homes bought by Canadians were located in Florida and 11% in Arizona. With three-fourths of home purchases in Florida and Arizona, the location of the purchases indicates a strong preference to acquire a winter retreat. And with the Global Financial Crisis and drop in home prices from 2006 through 2011, prices in many areas in these states are less than in Canada. For example, the Canadian Real Estate Association reported that the average home purchase price in Canada during May 2017 was $453,300, measured in US currency. In the Toronto metropolitan area the average home sales price was $600,000 and in Vancouver $721,100, again measured in US currency. These prices are well above the sales price in the metropolitan areas that have been most popular with Canadian buyers. The five most popular, accounting for more than one-half of Canadians’ purchases last year, were Miami, Phoenix, Tampa, Cape Coral, and Orlando. And because these areas were hit hard by the foreclosure process, prospective buyers can often buy an REO or short sale for an even lower price.
Americans headed towards $1 trillion in credit card debt, study says
Americans are starting to pile up more credit card debt than ever before. According to a new study released Monday, US consumers added $33 billion in credit card debt during the second quarter of 2017, making it the second-highest point of debt since the end of 2008. Personal Finance website WalletHub.com—who conducted the study—projects that by the end of 2017, Americans will pile more than $60 billion in new credit card debt, which means overall the US is headed towards well over $1 trillion in credit card debt.The news comes following the worst year for credit card debt (2016) since the Great Recession, where US consumers ended the year with $87.2 billion in new credit card debt. The first quarter of 2017, however, started out strong as consumers payed down $30.5 billion of that debt but then relapsed during the second quarter from April 1 to June 30. According to WalletHub, the average household credit card balance has rose to $7,996 in 2017, up from $7,584 during the same period last year. Total credit card debit is up more than 6% reaching $936.10 billion from $884.70 billion last year.
LegalShield Law Index shows consumer financial stress worsened significantly in August–while consumer confidence continues to be overstated
The LegalShield Law Index for August, released today, suggests as it has for the last few months that there will be a downward correction in consumer confidence, which remains high despite middling consumer spending and retail sales data. The LegalShield data, based on demand for legal services, indicate that retail sales and other consumer activity may fall short of expectations this holiday shopping season. While consumer finances are generally healthy, there remains a noteworthy divergence between LegalShield data and the Conference Board’s Consumer Confidence Index, which improved in August despite only moderate retail growth. LegalShield data continue to signal a pending correction in Consumer Confidence, as historically when these two indices diverge, it is typically Consumer Confidence that moves into line with LegalShield data, as it has in the past, most notably in the run-up to the 2008-09 recession. “While confidence remains an important economic indicator, our data suggest that confidence is inflated right now. Decision makers who rely heavily on confidence measures in forecasting consumer spending may be disappointed,” explained James Rosseau, LegalShield’s chief commercial officer. “Our data, which stem from concrete legal actions undertaken by consumers and small businesses, point to moderate consumer spending heading into the holiday shopping season later this year.”
Affecting the worsening in the Consumer Financial Stress Index is another component of the LegalShield Law Index, the Foreclosure Index, which rose (worsened) 5.1 points to 63.8 in August—though foreclosures remain down nearly 5% year-over-year. “Consumer spending accounts for more than two-thirds of US economic activity,” Rosseau said. “The LegalShield Consumer Financial Stress Index tends to lead the Conference Board’s Consumer Confidence Index by one to three months and provides a useful ‘hard’ data check on survey-based, ‘soft’ data measures that are not always consistent with underlying economic conditions.” “We are coming to believe that confidence remains near record-highs due to stubborn optimism on the part of survey respondents,” Rosseau noted. “Our data indicate that consumers have reason to be confident about the economy, and of course we hope for continued economic strength. That said, our data, along with other measures of consumer health (such as the University of Michigan’s Survey of Consumer Sentiment), have worsened in recent months. In light of these developments, we want to make decision makers aware that consumer spending will likely continue to fall short of the levels implied by consumer confidence. In short, the consumer picture is pretty good, but not gangbusters.” Having debuted with the release of data for May, the LegalShield Law Index is made up of five indices, including the LegalShield Consumer Financial Stress Index, LegalShield Housing Activity Index, LegalShield Bankruptcy Index, LegalShield Foreclosure Index, and the LegalShield Real Estate Index. To depict the health of the US economy, each index relies on LegalShield’s unique and proprietary database of member demand for and usage of legal services.
Additional predictive takeaways based on the data through August:
– Housing construction, which has been essentially flat over the last two years, despite substantial demand pressures, should pick up in the months ahead.
– Bankruptcies should remain subdued in the near term. However, bankruptcies may increase in the medium term, particularly if student loan debt, auto loan debt, or credit card debt begin to drag on consumer financial health.
– Existing home sales should slowly improve through the remainder of the year. However, a strong sales resurgence is unlikely to occur in the near term.