Prepaid activity falls to another all-time low as mortgage rates top 7%

Prepaid activity fell to another all-time low in October amid mortgage rates topping 7% and the depletion of refis. black knight expects sharp drops in rate lock volume and seasonal factors to point to further declines in prepaid activity.

Prepayment fell 16.5% to a single-month mortality rate of 0.48%, well below the previous record of 0.55%, according to Black Knight’s October Mortgage Yield Statistics report.

“While this is obviously a challenging environment from an origination perspective (the refinancing market is essentially non-existent right now), it also tends to increase the value of mortgage servicing rights on older loans with lower rates,” Andy Walden, vice president of business research. and strategy at Black Knight, he said.

Rate lock volume fell more than 60% in October year-over-year as it struggled under the weight of highs mortgage rates, which closed October at 7.06%. The refinancing market also approaching the bottom. Cash-out refinances are now down 83.6% compared to October 2021, and rate/term refinances are down a staggering 92.6% year-over-year, according to another Black Knight report.

The national bad debt rate, which was close to a record low in September, rose 4.5% last month to 2.91%. Florida led the rise in new early delinquencies, with the statewide delinquency rate rising 53 basis points to 3.42%, providing an early indication of the impact of Hurricane Ian.

“One-third of the October delinquency rate increase was driven by the anticipated impact of Hurricane Ian,” Walden said. “Since there was also an increase in delinquencies in areas not affected by the hurricanes, we will be watching the performance of mortgages in the coming months to see how the situation develops.”

Black Knight noted that despite a nearly 10% increase in the number of homeowners with a single late payment in October, new delinquency inflows remained below pre-pandemic levels.

Loans 60 days past due rose 2.9% nationally, while those 90 days past due or more saw continued improvement, falling another 1.5% in October.

Foreclosure initiations started at 4% of existing serious delinquencies in October, up slightly from 3% in September, but still less than half the rate seen in pre-pandemic years.

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