Mortgage prepayment rebounds with spring buying season

Mortgage prepayment broke a four-month streak of record lows in February, with relief likely to extend as the spring home buying season takes hold, Black Knight’s mortgage performance data showed.

“Prepayment activity ticking up slightly in February is an underlying indicator that both refinance and purchase origination volumes may have reached their cyclical lows,” Andy Walden, vice president of enterprise research and strategy at Black Knight, said.

​​In a typical year prepayment activity driven by home sales – which in today’s market accounts for more than half of all prepays – nearly doubles between January and June, Walden explained. 

But with refinance volumes near record lows, such season impacts will be much more noticeable this year, Walden added. 

“If home sale related prepayments were to follow that typical seasonal pattern this year it would provide a 40-50% tailwind for overall prepayment speeds in coming months. While they are still expected to remain historically low, that seasonal pattern would continue to pull them off their current record lows,” he said.

The national mortgage delinquency rate rose seven basis points to 3.45% in February but remained down 12.6% year over year.

The delinquency rate is nearly 40 bps below the level it was at when entering the pandemic, and the mortgage market continues to be in a strong position overall, Black Knight said.

A 36,000 rise in overall delinquencies was driven by a nearly 65,000 increase in those just a single payment behind, while 60-day delinquencies fell by nearly 12,000, or 4%. Delinquencies of 90 days fell by 17,000, or 3%, with serious delinquency volumes decreasing in 45 states.

Early signs of broader economic impacts are starting to be seen in some segments, however, Walden noted. 

“The most notable example is among FHA mortgages, which tend to be held by lower income borrowers as well as first time homebuyers.” he said. 

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