Mortgage borrowers lost record amounts of assets in Q3

of home equity buffer The mortgage industry’s expectations for sustaining loan performance hit a record low in the third quarter.

Homes lost a total of $1.3 trillion, or 7.6% of assets, during the third quarter, according to Black Knight.

According to Ben Graboske, president of data and analytics at Black Knight, these declines represent the largest quarterly decline in the dollar to date and the biggest percentage decline since 2009. increase.

“While hitting a record high in the second quarter, total homeowner wealth peaked mid-quarter in May and has been declining since,” Graboske said in a press release issued Monday. “Overall, mortgage property stocks have fallen by nearly $1.5 trillion since that time.”

While the decline was notable, it has not yet exhausted the equity buffer built during the 2020-2021 housing boom.

Overall, at the end of the third quarter, the 50 largest housing market valuations were between 19% and 66% higher than when the pandemic began in 2020.

However, the speed at which high interest rates have dampened the gains over the past two years has been remarkable, with some regions seeing equities decline 10% or more since the market peaked.

For example, in California, San Jose and San Francisco median home prices fell 13.3% and 12.1%, respectively, in the third quarter. In Seattle, it was down 10.3%.

Falling home prices have also more than doubled the number of borrowers whose mortgages are above their home prices since the peak of the market, notes Black Knight. But on a net basis, home price gains have changed little over the past two years, with just 0.84%, or less than 500,000 homeowners, submerged, according to the company’s latest survey.

Digging deeper into previously reported trends, Black Knight’s Monitor Monitor report found that while loan performance remains historically strong, Hurricane Ian put 355,000 homes at risk of property damage and delinquencies. I understand that it is.

Also noteworthy in the report is that the cash out advance payment It has fallen to the lows last seen in 2018, the last cycle of rising interest rates. Falling interest rates and equities have significantly reduced the willingness to cash out activity, but Slight increase in fees These loans could start in February on the government-sponsored enterprise market, which could prompt some borrowers to act before price changes take place.

Meanwhile, housing turnover is increasingly impacting prepayment speeds as cash-out activity declines. Black Knight found that 60% of prepayments were driven by that factor.

“In a typical year, prepayments related to home turnover seasonally decline by about 30% from September to February,” notes Black Knight in the report. “Given that home sales-related prepayments now account for nearly two-thirds of all prepayments, this seasonal downward pressure on home sales alone would have , we could see an additional 20% slowdown in prepayment speeds in the coming months.”

Prepayment rates for loans backed by government-backed companies Fannie Mae and Freddie Mac dropped 16% to 17% in October, according to a Barclays report released on Monday.

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