Black Knight – Mortgage Monitor:
tappable equity at
all-time high, but tax code changes could impact
homeowners’ utilization
– As of Q3 2017, approximately 42 million homeowners
with a mortgage have nearly $5.4 trillion in equity
available to borrow against, assuming a maximum 80%
total loan-to-value ratio
– Over 80% of all mortgage holders now have available
equity to tap via a first-lien cash-out refinance or
home equity line of credit (HELOC)
– Under the recently passed tax reform plan, interest
on HELOCs is no longer deductible, increasing the
post-tax expense of such products for those who itemize
– HELOCs have been an attractive option for borrowers
to utilize available equity without sacrificing low
first- lien interest rates; with interest on these
products no longer deductible, the value proposition
has changed
– In many cases, for borrowers with high unpaid
princ ipal balances (UPB), taking out low-dollar lines
of credit, the math still favors HELOCs
– However, for low-to-moderate UPB borrowers taking
out larger amounts of equity – assuming interest on
cash-out refinances remains deductible – the post-tax
math may now favor such products instead, even if it
results in a slight increase to first lien interest
rates
The Data & Analytics division of Black Knight, Inc.
released its latest Mortgage Monitor Report, based on
data as of the end of November 2017. This month, Black
Knight finds that tappable equity – the amount of
equity available for homeowners to borrow against
before reaching a maximum 80% total loan-to-value (LTV)
ratio – is at an all-time high. However, as Black
Knight Data & Analytics Executive Vice President Ben
Graboske explained, recent changes to the US tax code
may have implications for homeowners’ utilization of
that equity. “As of the end of Q3 2017, 42 million
homeowners with a mortgage now have an aggregate of
nearly $5.4 trillion in equity available to borrow
against,” said Graboske. “That is an all-time high, and
up more than $3 trillion since the bottom of the market
in 2012. Over 80% of all mortgage holders now have
available equity to tap, whether via first-lien
cash-out refinances or home equity lines of credit
(HELOCs). We’ve noted in the past that as interest
rates rise from historic lows, HELOCs represented an
increasingly attractive option for these homeowners to
access their available equity without relinquishing
interest rates below today’s prevailing rate on their
first-lien mortgages. However, with the recently passed
tax reform package, interest on these lines of credit
will no longer be deductible, which increases the
post-tax expense of HELOCs for those who itemize. While
there are obviously multiple factors to consider when
identifying which method of equity extraction makes
more financial sense for a given borrower, in many
cases, for those with high unpaid principal balances
who are taking out lower line amounts, the math still
favors HELOCs. However – assuming interest on cash-out
refina nces remains deductible – for low-to-moderate UPB
borrowers taking out larger amounts of equity, the
post-tax math for those who will still itemize under
the increased standard deduction may now favor cash-out
refinances instead, even if the result is a slight
increase to first-lien interest rates.
“As rates continue to rise and the cost associated with
increasing the rate on an entire first-lien balance
rises as well, the benefit pendulum will likely swing
back toward HELOCs. Even so, the change could certainly
impact HELOC lending volumes and loan amounts in the
coming months and years. To a certain degree, the same
question holds true for cash-out refinances, since tax
debt for homeowners who will no longer itemize becomes
generally more expensive without mortgage interest
deduction in the equation. These refinances will likely
be an attractive source of secured debt in the future,
but increased post-tax costs may have a negative impact
on originations. That said, it still remains to be seen
whether and to what extent tax costs will impact
borrower decisions in terms of either HELOCs or
cash-out refinances. At this point, only time will
tell.” The increase in equity, driven by rising home
prices, has also continued to shrink the population of
underwater borrowers who owe more on their mortgages
than their homes are worth. The number of underwater
borrowers declined by 800,000 over the first nine
months of 2017, a 37% decline in negative equity since
the start of the year. Only 2.7% of homeowners with a
mortgage (approximately 1.36 million borrowers) now owe
more than their home is worth, the lowest such rate
since 2006. Though still elevated from pre-recession
levels, the negative equity rate continues to
normalize. Even so, home prices in large portions of
the country remain below pre-recession peaks. While 36
states and 70% of Core Based Statistical Areas (CBSAs)
have now surpassed pre-recession home price peaks, 43
of the nation’s 100 largest markets still lag behind.
As was reported in Black Knight’s most recent First
Look news release, other key results include:
– Total US loan delinquency rate: 4.55%
– Month-over-month change in delinquency rate: 2.54%
– Total US foreclosure pre-sale inventory rate: 0.66%
– Month-over-month change in foreclosure pre-sale
inventory rate: -3.15%
– States with highest percentage of non-current loans:
MS, FL, LA, AL, WV
– States with lowest percentage of non-current loans:
MT, MN, OR, ND, CO
– States with highest percentage of seriously
delinquent loans: MS, FL, LA, TX, AL
Wall Street new year rally pauses as healthcare, bank
stocks weigh
The benchmark S&P 500 opened lower for the first time
in 2018 on Monday, as losses in healthcare and
financial stocks cut short Wall Street’s strongest
start to a year in a decade. The S&P and the Nasdaq
last week recorded its strongest first four trading
days in a year since 2006, and the Dow industrials
posted its best since 2003. “We had a strong market in
the past week, and what generally happens in the first
week sets the trend for the remainder of the year. Now
that it’s established, there could be some profit-
taking,” said Peter Cardillo, chief market economist at
First Standard Financial in New York. At 9:41 a.m. ET,
the S&P 500 was down 2.84 points, or 0.10%, at
2,740.31. The Dow Jones Industrial Average was down
31.55 points, or 0.12%, at 25,264.32, and the Nasdaq
Composite was down 4.19 points, or 0. 06%, at 7,132.37.
The Dow and the Nasdaq still eked out record highs
briefly after open. The dollar inched higher against a
basket of major peers with data showing that slower US
jobs growth did little to dent expectations for further
interest rate increases this year.
Capital Region totals exceed height of subprime crisis
A decade after the subprime mortgage crisis put
millions of Americans out of their homes, dozens of
houses are still falling into foreclosure each month in
the Capital Region. The trend continues despite a
much-improved economy, more-careful mortgage industry
practices and an infrastructure of support that has
been created for borrowers facing the loss of their
homes. “We have noticed that the number of foreclosures
have not gone back to pre-Great Recession levels,” said
James Flacke, executive director of Better
Neighborhoods Inc., a Schenectady nonprofit that
provides assistance to homeowners facing mortgage
foreclosure. Statistics compiled by ATTOM Data
Solutions show the following combined foreclosure
totals for Albany, Fulton, Montgomery, Saratoga,
Schenectady and Schoharie counties:
2006: 156
2007: 386
2008: 495
2009: 451
2010: 554
2011: 211
2012: 330
2013: 377
2014: 625
2015: 902
2016: 1,056
2017: 777
The 2017 total is for 11 months — December numbers were
not yet available. The other years count all 12 months.
And the totals are only mortgage foreclosures by
lenders — foreclosures by municipalities for nonpayment
of taxes are not included.
The head of another non-profit that offers housing
counseling, the Affordable Housing Partnership in
Albany, said the foreclosure rate never really slowed
after the subprime crisis. “The basic reasons are still
loss of income, primarily, or health reasons, or
divorce,” Executive Director Susan Cotner said. “The
big economic downturn crisis has passed but still
people struggle with their mortgages all the time.”
ATTOM found that New York had the 10th highest rate of
foreclosure among the 50 states as of September: one
foreclosure for every 1,671 housing units. ATTOM also
found that foreclosure activity of all types — default
notices, repossessions and auctions — in the third
quarter of 2017 was at its lowest level in 11 years
nationwide. The Capital Region apparently has not been
following the downward trend. There were 1,681 such
notices issued in the Capital Region from Nov. 21 to
Dec. 20, 1,500 one month earlier, and 1,528 two months
earlier. They had been averaging about 1,400 a month.
Oil approaches 2015 highs on fewer US rigs,
OPEC
Oil prices rose on Monday, coming close to new
three-year highs on a slight decline in the number of
US rigs drilling for new production and sustained OPEC
output cuts. US West Texas Intermediate crude futures
had risen to $61.94 a barrel by 1140 GMT, 50 cents
above their last settlement. WTI last week reached
$62.21, the highest since May 2015. Brent crude futures
were at $67.95 a barrel, 33 cents above their last
close. Brent hit $68.27 last week, the highest since
May 2015. Traders said the gains were due to a slight
decline in the number of US rigs drilling for new
production. The rig count eased by five in the week to
Jan. 5 to 742, according to data from oil services firm
Baker Hughes. Despite this, US production is expected
soon to rise above 10 million barrels per day, largely
thanks to soaring output from shale drillers. Only
Russia and Saudi Arabia produce more.
Trump expected to dilute Dodd-Frank in 2018
Analysts at Goldman Sachs think two issues will be the
subject of reform in 2018. “First, a few smaller issues
stand a good chance of enactment,” said the global
analytics team in an email to clients. “Among these are
health legislation that would incrementally stabilize
the ACA and banking legislation that would make
incremental changes to the Dodd-Frank Act. So, say
“Adios, Dodd-Frank,” Goldman says the president is
coming for you. Here’s the rest of the prediction:
“Second, Congress faces new fiscal deadlines. Spending
authority expires January 19 and the debt limit must be
raised by March. These deadlines could lead to
near-term uncertainty but are also likely to lead to
some additional fiscal stimulus. We expect spending
caps to be lifted and a third round of disaster relief
funding to be approved as part of the process.”
See you at the top!