Tappable home equity is at the highest it has ever been according to Black Knight Inc.’s latest Mortgage Monitor Report for February, released on Monday. According to the report, the amount available for homeowners with mortgages to borrow against before hitting a maximum cap of 80 percent loan-to-value ratio grew by $735 billion in 2017 alone. By February, the total amount of tappable home equity stood at over $5.4 trillion, 10 percent above its 2005 pre-crisis peak.
The report found that over half (55 percent) of all tappable equity was held by borrowers with first lien rates below the prevailing 30-year rate at the beginning of 2018. With interest rates rising in February, 75 percent of all tappable equity was held by borrowers with rates that were lower than those today.
“As home prices continued their upward trajectory at the national level, the amount of tappable equity available to homeowners with mortgages continued to rise as well,” said Ben Graboske, EVP, Black Knight Data & Analytics.
Despite these numbers, the number of Americans actually tapping into this available resource was very small. “An estimated $262 billion in tappable equity was withdrawn in 2017 via cash-out refinances and home equity lines of credit (HELOCs), also reaching a new post-recession peak,” Graboske said. “Still, Americans seem more reserved in tapping their equity than in years past, withdrawing less than 1.25 percent of all tappable equity available in Q4 2017—a four-year low.”
As interest rates rise, Graboske said that Black Knight expected the HELOC share of withdrawals to increase too. “While rising rates tend to dampen utilization of equity in general, the market is poised for a strong shift toward HELOCs, as they allow borrowers to take advantage of growing equity while holding on to historically low first-lien interest rates,” he said.
As HELOCs show all indications of coming back, the report indicated that prepayment activity continued to decline in February. “The spike in interest rates over the first two months of 2018 have reduced the number of refinance candidates by more than 40 percent,” the report said. “This has resulted in the smallest such population since late 2008; as such, it's no surprise that prepayments are among the lowest since that time period as well.”
According to the report, prepayment rates on mortgages of those with a 720+ credit score was the lowest among the four credit score groupings analyzed in each of the past three months. In fact, the prepayments for the 720+ score group dipped below those of the less than 620 credit score borrowers. Borrowers with credit scores between 620 and 719 are currently prepaying at the highest rate, the report found.