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Blog

Reversed Course

July 23rd, 2019

The bubble in the mortgage prepayment rate burst in June.  Black Knight, in its "first look" at the month's loan performance statistics, said the single month mortality rate (SMM), the pace at which mortgages are paid down or off, declined for the first time in five months.  The rate is usually an indication of refinance activity, although home sales also play a major role, and it dropped 7.5 percent compared to the previous month despite continuing low interest rates.  The prepayment rate had surged 24 percent in May to the highest level since late 2016 and more than doubled over the February-May period.  Even with the downturn last month the rate remains 20 percent higher than in June 2018 at 1.14 percent.

Black Knight says that the national delinquency rate has set multiple consecutive record lows, but the calendar conspired against it in June.  There is a seasonal tendency for delinquencies to rise in June and when any month ends on a Sunday we see a short-lived increase in the past-due numbers as processing of late arriving payments is delayed.  Both of these occurred last month, and the national delinquency rate spiked by nearly 11 percent. The number of loans 30 or more days past due or in foreclosure jumped by 190,000 bringing the rate to 3.73 percent.  This past due inventory is up by 30,000 loans year-over-year.

The increase however, and this is not surprising given the calendar explanations, was all in early stage delinquencies.  The serious delinquency rate hit its lowest level in 12 years, down 6,000 loans since May and 93,000 over the previous 12 months.  There are now 455,000 loans that are more than 90 days past due or in foreclosure.

Even with that decline there was an increase in the foreclosure inventory portion within serious delinquencies and in foreclosure starts.  The inventory, loans in the process of foreclosure, increased by 4,000 loans to 259,000 and there were 40,100 loans put into foreclosure, a 2.52 percent increase from the previous month.