Despite Record Tappable Equity, Borrowing Hits 4-Year Low

Mike Sorohan msorohan@mba.org

July 10, 2018

Black Knight, Jacksonville, Fla., said despite record-setting levels of "tappable" equity growth in the first quarter, the share of total equity withdrawn by borrowers hit a four-year low.

The company's monthly Mortgage Monitor report also noted Home Equity Line of Credit withdrawals fell to their lowest total since first quarter 2016, continuing a three-year trend. Meanwhile cash-outs jumped by 5 percent to 70 percent of refinancings in the first quarter, with nearly half of homeowners who did so increasing their interest rate in the process.

"As short-term rates rise, it seems that traditionally good HELOC candidates may be opting for cash-out refis due to the competitive rate advantage," said Black Knight Executive Vice President of Data and Analytics Ben Graboske.

The report said tappable equity grew by $380 billion in the first quarter to $5.8 trillion, a 7 percent increase, representing the largest single quarter growth since Black Knight began tracking it in 2005. It said tappable equity is up by $820 billion (16.5 percent) over the past 12 months.

Black Knight said the average homeowner with a mortgage gained $14,700 in tappable equity over the past year and has $113,900 in total. Nearly 80 percent of the nation's tappable equity is held by homeowners with first lien interest rates of less than 4.5 percent, while 60 percent is held by borrowers with rates less than 4%.

However, the report noted homeowners with mortgages withdrew just $63 billion in equity via cash-outs or HELOCs in the first quarter, a 7 percent decline from the fourth quarter and just a 1.1 percent increase from a year ago. Just 1.17 percent of total tappable equity available was withdrawn over the quarter, the lowest share in four years, and the second lowest since the housing recovery began. And even though rising first lien interest rates normally produce an increase in HELOC lending, the volume of equity withdrawn via HELOCs dropped to a two-year low as well.

Graboske said the primary driver is likely the increasing spread between first lien mortgage interest rates--tied most closely to 10-year Treasury yields--and those of HELOCs, which are more closely tied to the federal funds rate. As of late 2017, the difference between HELOC and first lien rates grew to 1.5 percent, the widest spread since Black Knight began comparing the two rates more than 10 years ago.

"As counterintuitive as it may be, increases in the fed funds rate may actually be buoying the refi market, as the vast majority today are driven by equity withdrawal rather than interest rate improvement," the report said.

Black Knight reported the total U.S. loan delinquency rate at 3.64 percent, a drop of 0.84 percent from April. The total U.S. foreclosure pre-sale inventory rate was 0.59 percent, a drop of 3.30 percent from April.

The report said states with the highest percentage of non-current loans were Mississippi, Louisiana, Alabama, West Virginia and Florida; states with the lowest percentage were Colorado, Oregon, North Dakota, Washington and Minnesota. States with highest percentage of seriously delinquent loans were Mississippi, Florida, Louisiana, Alabama and Texas.

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