• 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
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.
29 January/February 2016