Monthly mortgage production fell to the lowest level in more than a decade, but opportunity lurks in one segment of the market. Cash sales have kept real estate sales moving, while foreclosure starts sank due to new rules.
Home loan production fell to 273,000 loans in January — the fewest mortgages originated during any single month since at least 2000.
Business was down from December 2013’s loan originations of 351,000 and came in at less than half of January 2013’s 776,000 residential loan closings.
The statistics were included in the Mortgage Monitor Report from Black Knight Financial Services.
Among borrowers with low credit scores, there has been very little origination activity. In 2007, around 10 percent of originations were to borrowers with credit scores of less than 620. Last year, that share was less than 3 percent.
Black Knight Senior Vice President Data and Analytics Herb Blecher said in the announcement. that there have been no signs of loosening credit standards, with just 30 percent of the 2013 vintage having credit scores less than 720.
Blecher suggests there is a significant opportunity to expand originations with the underserved market of borrowers who have lower credit scores.
Federal Housing Administration loans and Ginnie Mae mortgages accounted for 83 of last year’s residential originations, slipping from 84 percent in 2012.
While originations have recently slowed, real estate activity has continued thanks to cash sales.
“Residential real estate sales have remained strong due at least in part to investor activity and the fact that cash sales account for almost half of all transactions,” Blecher said. “In addition, while total transaction levels were flat on a year-over-year basis, traditional (or ‘non-distressed’) sales were up almost 15 percent from last year as the share of distressed transactions continues to decrease.”
Blecher cautioned about approximately 2.5 million loan modifications with interest rate reductions, of which more than 95 percent face rate resets. He noted many begin adjusting this fall, though payment adjustments are modest.
A sharp shift was noted in the timing of foreclosure starts following implementation of new Consumer Financial Protection Bureau rules.
“As the CFPB rules dictate that foreclosure cannot begin until after 120 days of delinquency, the data showed foreclosure starts at the 90-day mark have all but ceased, while four-month delinquency starts have risen over 100 percent since December,” Black Knight said.
