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Refinance Activity Brings Prepayments to Seven-Year High

Mortgage delinquency rates fell in August as prepayment rates shot up, ""Lender Processing Services"":http://www.lpsvcs.com/Pages/default.aspx (LPS) revealed.


LPS' August Mortgage Monitor report showed a national delinquency rate of 6.9 percent, consistent with the company's earlier first-look data. Delinquencies were down 2.3 percent from July and 10.6 percent from their January 2010 peak.

The amount of seriously delinquent loans has also shown great improvement, falling off by nearly half of its peak in January 2010. Most of that amount is now past due for more than nine months, with 43 percent of seriously delinquent loans more than one year past due.

The drop in delinquency was accompanied by a significant boost in prepayment rates, hitting an annualized rate of nearly 25 percent ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô a level not seen since 2005.

LPS' analysts said the broad-based increase is another sign of heightened refinance activity.

""Our analysis showed an increase in prepayment activity across the entire combined loan-to-value (CLTV) continuum,"" said Herb Blecher, SVP of LPS Applied Analytics. ""While those loans with equity, particularly 80 percent CLTV and below, have much higher prepayment speeds, the impact of the Home Affordable Refinance Program (HARP) was also clear.""

Loans with higher CLTVs saw the greatest uptick in prepayment. Loans with a CLTV of more than 120 experienced a 65 percent year-to-date increase, while those with a CLTV between 100-120 percent saw a 50 percent rise.

The rise in prepayment rates was lower for older loans. For example, loans with vintages from 2007 or earlier only saw a prepayment increase of 9 percent, interpreted by LPS as ""refi burn out.""

""Fewer than 30 percent of these vintages remain both active and current, and on average, they are marked by larger negative equity positions and lower credit scores,"" Blecher said. ""That said, HARP might yet represent a viable refi option for a good portion of this pool.""


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