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Black Knight: Q1 2020 Cash-Out Refinances Fell Despite Record-High Tappable Equity

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  • Tappable equity rose 8% annually in Q1 2020 to an all-time high of $6.5 trillion
  • With mortgage interest rates hitting record lows in recent weeks, 90% of homeowners with tappable equity now have first lien rates above the prevailing market average; more than 75% have rates above 3.5%

Today, the Data & Analytics division of Black Knight, Inc. released its latest Mortgage Monitor Report, based upon the company’s industry-leading mortgage performance, housing and public records datasets. As Black Knight Data & Analytics President Ben Graboske explained, despite record-low interest rates and record-high levels of tappable equity — the amount available to homeowners with mortgages to borrow against before reaching a maximum combined loan-to-value ratio of 80% — both the number of cash-out refinances and the volume of equity withdrawn via such loans fell in Q1 2020.

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“Tappable equity rose by 8% year-over-year in the first quarter of 2020 to a record high of $6.5 trillion,” said Graboske. “What’s more, with mortgage interest rates hitting record lows, 90% of homeowners with tappable equity now have first lien rates above the prevailing market average. But while Q1 2020 saw overall refinance lending climb to a 7-year high, the number of cash-out refinances, as well as the dollar value of equity withdrawn via refinance, fell for the first time since early 2019. All in, cash-outs accounted for just 42% of refinance loans in the first quarter, roughly half of what was seen at the recent high in Q4 2018 and the lowest such share since Q1 2016. Likewise, the $38.7 billion in equity withdrawn from the market via cash-out refinances was down 8% from the prior quarter. Further, rate lock data — a good indicator of lending activity suggests the trend is likely to continue, as the cash-out share of refinance activity has continued to fall throughout the second quarter.

“Through June 19, cash-out refinance locks were down 6% from the comparable time frame in Q1 2020, while rate/term locks were up 13% — even including the massive wave of refinance locks seen in early March. The environment is ripe for that surge of rate/term refinance lending to continue as well. Despite rising delinquencies cutting into the number of homeowners who would otherwise meet broad-based eligibility requirements to refinance, some 13.6 million homeowners still meet those criteria, which include being current on their mortgage, and could shave at least 0.75% off their first lien rates by refinancing. Mortgage rates fell to a record low of 3.13% on June 18 according to Freddie Mac’s Primary Mortgage Market Survey (PMMS); if they were to tick down just one basis point, that population would swell by 20% to 16.3 million, an all-time high for refinance incentive.”

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The month’s data also showed that the 13.6 million refinance candidates in the market today could save an average of $283 per month on their mortgage payment. If all eligible candidates were to refinance their mortgages, they would see an aggregate savings of $3.9 billion per month, representing a potentially significant and much-needed stimulus to the economy. Of these, some 4.6 million could save at least $300 per month on their mortgage payments, while 2.6 million would be able to save at least $400 per month. Much more detail can be found in Black Knight’s April 2020 Mortgage Monitor Report.

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  1. […] Black Knight: Q1 2020 Cash-Out Refinances Fell Despite Tappable Equity  AiThority […]

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