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Issues Impacting the Home Equity Market

The extended period of low mortgage rates is drawing to a close, but it's definitely left its mark on the U.S. housing market. According to a new report by the Urban Institute, 91 percent of mortgages as of September had average rates below 5 percent.

By comparison, there were almost no mortgages with rates that low in 2001 and less than a quarter of U.S. mortgages had rates that low in 2010.

But while that's been good for consumers, Urban Institute reports that it's been less of a positive for the GSEs.

“One consequence of the increase in mortgage rates is that the pool of borrowers who are able to save money by refinancing their mortgages has shrunk substantially,” the report states. “We have seen this in recent months, as the refinance share for all three agencies has plummeted.”

According to the report, all three agencies were at or near their lowest point for refis in recent history in August. The refinance share for all three agencies grew slightly in September, but refinance was much lower than it was a year prior.

September shares finished at 32 for Fannie Mae, 26.5 for Freddie Mac, and 21 for Ginnie Mae.

“This also has implications for the options homeowners have for extracting equity from their homes,” the report states. Typically, these include cash-out refinances, home equity lines of credit, or HELOCs.

According to the institute, the cash-out refinance share of conventional refinance mortgages rose to 77 percent in Q2. That's the highest level since the third quarter of 2008 when the share was 78 percent.

“In 2008, however, the cash-out spike was due to borrowers overleveraging their homes,” the report states. Today's numbers are attributable to the reduction in rate refinances.

The effects on loan originations have been slight. According to the report, first lien originations totaled $820 billion in Q2, which was down only a bit from Q2 of 2017. That's mostly due to higher interest rates.

The share of portfolio originations was 32 percent in the first half of 2018, up from 30 percent in 2017, the report states. The GSE share was around 44 percent, down from 46 percent in 2017. The FHA/VA share was slightly down: 22 percent for the first half of this year, versus 23 percent in 2017.

Origination of private-label securities was under just under 2 percent, which was higher than the 2017 share of 0.6 percent.

About Author: Scott Morgan

Scott Morgan is a multi-award-winning journalist and editor based out of Texas. During his 11 years as a newspaper journalist, he wrote more than 4,000 published pieces. He's been recognized for his work since 2001, and his creative writing continues to win acclaim from readers and fellow writers alike. He is also a creative writing teacher and the author of several books, from short fiction to written works about writing.
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