Mortgage Women Magazine

• Out of 914,800 HELOC originations through August of this year just 13,220 – 1.4 percent – have gone to consumers with subprime scores. Overall HELOC origination limits averaged $101,700 in August, nearly three times the $37,375 average origination limit for subprime HELOCs.

As highlighted in last month’s data released at the Mortgage Bankers Association’s (MBA) annual conference, the robust originations tale is in contradiction with the growth path in mortgage balances: mortgage loan portfolios are stagnating at the same time originations are soaring.

Despite a 58.6 percent rise in first mortgage origination dollars year-to-date, first mortgage portfolio balances are little changed from a year ago, or five years ago for that matter. In fact, total first mortgage balances outstanding have been within five percent of current levels since May 2010. Home equity loans and lines of credit, on the other hand, have been in a steady decline since the start of the financial crisis and now sit at levels that are 44. 6 percent (HE loans) and 71.5 percent (HELOCs) below their respective peaks.

There are several reasons for the disconnect between portfolio balances and originations activity:

• Loan payoffs. Buoyed by an improved economy and finances, homeowners have been paying down debt faster through pure payoffs, cash-in refinancing, or by curtailing the debt by adding extra dollars to each month’s payment.

• Mortgage refinancing. Consumers continue to refinance existing mortgage debt at lower rates and into shorter term lengths, also putting downward pressure on overall mortgage debt.

• Severe derogatory. As loans at the end of the foreclosure process are converted to bank-owned real estate or other severe derogatory, the level of debt outstanding is reduced. The climate is improving, however, with the severe derogatory ( foreclosure termination) rate on first mortgages at 4.1 basis points of outstanding balances in October

2015, compared to 6. 4 basis points a year ago.

Severe delinquencies, defined as loans that 90 or more days past due or in the foreclosure process, are now at their lowest level since September

2007 as a share of both outstanding loans and balances.

• Home Purchases. Home sales activity has not yet fully recovered to normal levels, perhaps as represented by markets in 1999-2001, prior to the real estate frenzy. Economist consensus is that home sales will hit about 5. 8 million units this year, about six percent below levels in the just-defined normal period. However, it has taken nine years to get back to this level of sales. Home purchases are important to mortgage portfolio growth as first-time homebuyers take on debt that didn’t exist before and experienced homebuyers tend to buy larger, more expensive homes, typically taking on additional debt after rolling the proceeds from the sale of their previous homes into their new purchases.

Thus far in the economic recovery, payoffs and foreclosures have kept pace with home equity extraction and home-purchase mortgage growth, resulting in mortgage portfolios that are steady.

Despite the continuing rise in overall originations and small increases in lending to consumers with subprime credit, the industry remains mindful of mortgage portfolio performance. Equifax continues to keep an eye on changes in the market that lend to trends that benefit the industry and call attention to areas of increasing risk and possible solutions.

Amy Crews Cutts is the Chief Economist for Equifax where she conducts research relating to the consumer wallet – assets, income, credit, and spending along with macroeconomic factors affecting the consumer. She is also responsible for macroeconomic forecasting, advising the Senior Leadership Team on U.S. and global events relating to the company's interests, and representing Equifax with clients, the media, and the industry. Prior to joining Equifax she served as Deputy Chief Economist for Freddie Mac from 2003-2011.

The National Consumer Credit Trends Report reveals pop-ulation-level debt and lending insights, including originations, balances, number of loans, delinquencies and more from more than 210 million consumers.