A new report from real estate data and analytics firm Lender Processing Services (LPS) found that refinance activity plunged sharply in August as mortgage rates continued to rise.
Due to the higher rates, a large portion of borrowers has been effectively shifted out of the "refinancible" population, the firm said. However, the steady increase in home prices over the last year may finally be swelling the numbers of homeowners eligible for home equity lines of credit.
"We have seen prepayments decline by more than 30 percent since May, when mortgage interest rates began climbing approximately 100 basis points to where we are today," LPS Senior Vice President Herb Blecher said in a statement. "As a result, the percentage of borrowers currently in loans with interest rates high enough for refinancing to make fiscal sense has decreased significantly. Over half of borrowers are now ‘out of the money’ with respect to refinancing."
Compared with December 2012, when approximately 10 million borrowers would have qualified to refinance, only an estimated 5.7 million could do so in August, Blecher said. But the increase in home prices over the past 18 months or so means that many borrowers who purchased their homes in the past few years may now have sufficient equity to take out a home equity loan or second mortgage.
"Based upon LPS’ analysis of historical borrowing patterns and home value trends, it is possible that we could see an increase in second-lien borrowing among those who have locked in their first mortgages at very low rates and who wish to tap their equity without refinancing into a higher rate," he said in a statement.
Total U.S. loan delinquency rate was 6.2 percent in August, according to LPS, a decline of 3.3 percent from July, while homes in foreclosures made up 2.7 percent of the market, a decline of 5.7 percent from the prior month.
