As Refi Activity Fades, LPS Predicts Rise in Home Equity Loans

The number of homeowners eligible for refinancing has shrunk from about 10 million in December 2012 to about 5.7 million as of August, according to Lender Processing Services’ (LPS) latest Mortgage Monitor report.

LPS cites heightened refinance activity over the past few years and rising interest rates as reasons for the decline.

“Over half of borrowers are now ‘out of money’ with respect to refinancing,” said Herb Blecher, SVP at LPS.

Also supporting this trend, LPS’ data shows a decline in prepayment activity. Prepayment activity often serves as a predictor of refinance activity.

“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,” Blecher said.

While refinances are on the decline, LPS sees a market ripe for home equity lines of credit.

“After bottoming out at the beginning of 2012, home prices are now at their highest levels since 2009, and borrowers who bought or refinanced within the last few

years are quite likely to have accumulated additional equity in their homes,” Blecher said.

“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,” according to Blecher.

LPS also noted a decline in foreclosure starts nationwide but a simultaneous rise in foreclosure sales.

The national delinquency rate is 6.2 percent as of August, according to LPS, a 3.31 percent decline from the previous month.

The highest concentration of delinquent loans can be found in Florida, Mississippi, New Jersey, New York, and Maine.

The states with the lowest concentration of delinquent loans are Montana, Colorado, Wyoming, South Dakota, and North Dakota.

New York has the largest foreclosure pipeline, according to LPS’ report.

While judicial states continue to register large foreclosure pipelines, a few non-judicial states with recent changes in their foreclosure processes are also experiencing clogged pipelines.

For example, California’s pipeline has grown 70 percent since the state adopted its Homeowner Bill of Rights earlier this year.

A Supreme Court ruling in Massachusetts altered its foreclosure process, leading to a 136 percent increase in the state’s foreclosure pipeline since the second quarter of last year, according to LPS.

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