Both the amount of tappable equity and the number of viable refinance candidates nationwide have hit record highs, according to new data from Black Knight.
Tappable equity — the amount of equity available to homeowners to borrow against while still maintaining at least 20% equity in their homes — hit $6.5 trillion in the first quarter of 2020, up 8% year over year. That’s the highest ever recorded by the real estate analytics company.
Additionally, thanks to mortgage rates continuing to hit record lows, 90% of homeowners with tappable equity now have first lien rates above the prevailing market average. In fact, more than three-quarters of homeowners with mortgages currently have rates above 3.5%, potentially offering a big window to tap into their available equity while reducing their interest rates.
“But while Q1 2020 saw overall refinance lending climb to a seven-year high, the number of cash-out refinances, as well as the dollar value of equity withdrawn via refinance, fell for the first time since early 2019,” observed Ben Graboske, Black Knight data and analytics president. “All in, cash-outs accounted for just 42% of refinance loans in the first quarter, roughly half of what was seen at the recent high in Q4 2018 and the lowest such share since Q1 2016.”
The $38.7 billion in equity withdrawn via cash-out was down 8% from the previous quarter, Graboske added. And rate lock data, which Graboske noted is a good indicator of lending activity, indicates that the trend is likely to keep going.
Join 210,000 mortgage professionals
Get the news, trends and industry updates in your inbox to become a better mortgage originator. Subscribe to emails below.
Indeed, the cash-out share of refi activity has continued to fall throughout the second quarter, per Black Knight. Through June 19, cash-out refi locks fell 6% from the comparable period in the year’s first quarter. At the same time, rate/term locks were up 13%, even taking into account the surge in refinances from early March.
Meanwhile, the number of viable refi candidates — which Black Knight defines as holders of 30-year mortgages who are current on their payments, have a credit rating of 720 or above, a maximum of 80% loan-to-value ratio and can reduce their first lien interest rate by at least 0.75% — has also swelled.
Approximately 16.3 million homeowners fit that description, according to Black Knight, thanks in part to 30-year fixed rates hitting a record low of 3.07% last week. That number of refi candidates is an all-time high, surging by 20% over the previous week.
That population grew despite the ongoing COVID-19 pandemic putting more people into financial strain and raising mortgage delinquency numbers. For example, nearly 4% of homeowners who would have qualified otherwise left the list last month because their loans were past due, in or out of forbearance.
