Both mortgage originations and foreclosures are in freefall, according to the recent Mortgage Monitor report released by Black Knight Financial Services on Monday. Overall originations dropped 34 percent over the first quarter of the year, while foreclosure starts hit a 12-year low of just 52,800.
Though purchase loans and refinances took a hit during Q1, refis saw the steepest drop, falling 45 percent since the end of 2016 and 20 percent over the last year. According to Ben Graboske, EVP of Data & Analytics at Black Knight, this drop in refinances was no surprise.
“As expected, the decline was most pronounced in the refinance market, which saw a 45 percent decline from Q4 2016 and were down 20 percent from last year,” Graboske said. “They also made up a smaller share of overall originations than in the past; just 45 percent of total Q1 originations were refinances vs. 54 percent in Q4 2016.”
Purchase originations were down 21 percent over the quarter, though up slightly over the year, at 3 percent higher than 2016’s numbers.
“Purchase lending was up year-over-year, but the 3 percent annual growth is a marked decline from Q4 2016’s 12 percent and marks the slowest growth rate Black Knight has observed in more than three years—going back to Q4 2013,” Graboske said. “At that point in time, interest rates had risen abruptly— very similarly to what we saw at the end of 2016—and originations slowed considerably. The same dynamic is at work here.”
Though the decline of both numbers is worrisome, according to Graboske, it’s the lower credit scores of borrowers that should have the industry on edge.
“Not only are refinances—which generally tend to outperform purchase mortgages—making up a smaller share of the market, but there’s also been a net lowering of average credit scores as well,” Graboske said. “The average Q1 2017 refinance credit score was 742, down from 751 in Q4 2016, and the lowest average credit score since Q3 2014. Both of these factors could have a dampening factor on mortgage performance, holistically speaking.”
As for foreclosures, April marked the lowest month on record for first-time foreclosure starts, with just 24,200 for the month. Repeat foreclosures also dropped, hitting their lowest point since April 2008. The total delinquency rate for the month was 4.08 percent, with foreclosure pre-sale inventory dropping 3.47 percent.
The states with the highest share of delinquent loans were Mississippi, Louisiana, Alabama, West Virginia, and Maine.