Why Prepayment Activities Have Declined

Prepayment speeds declined to a decade-low in November driven by shrinking refinance activity and a seasonal slow down in home sales, according to Black Knight's First Look report that gave insights into the market's mortgage performance.

The report revealed that prepays, which are now primarily driven by home sales fell 14 percent on a month-over-month basis and by 29 percent from the same period a year ago. According to Black Knight, prepayments had reached these levels during the financial crisis when interest rates were well above 6 percent and purchase lending had fallen by 50 percent over 24 months.

The report which also focuses on delinquency data found a slight increase in national delinquency rates. Serious delinquency rates also saw a slight uptick, even though they remained "significantly below the rates seen during the same period last year."  Foreclosure starts fell 11 percent from October with around 45,200 starts recorded in November.

"A slight uptick in foreclosure inventory was offset by a month-over-month increase in the number of outstanding mortgages, resulting in a net decline in the national foreclosure rate," the report said.

Giving insights into properties that were past due but not in foreclosure, the report revealed that in November, homes that were 30 or more days past due increase by 41,000 to approximately 1.9 million. However, they remained well below the properties past-due last year. The number of properties that were 90 or more days past due were 156,000 below the same period last year but saw an uptick by 11,000 on a month-over-month basis. The presale inventory for properties in foreclosure also rose slightly over October but remained 69,000 below the same period in 2017.

Breaking down states on the basis of non-current totals, which combine foreclosures and delinquencies as a percent of active loans in that state, the report found that Mississippi was among the top five states by non-current percentage in November, followed by Louisiana, Alabama, Arkansas, and Virginia. The five states with the least non-current percentage included Idaho, California, Washington, Oregon, and Colorado.