Americans cash in as home equity hits a record $ 9.1 trillion

Rising house prices mean Americans are holding an all-time high of $ 9.1 trillion in tangible home equity, which they are paying out at levels not seen since the 2007 housing bubble.

But as long as prices don’t plummet, the rise in home equity – the value of a homeowner’s stake in their home after the mortgage debt has been deducted – is also good news for borrowers who chose to put their mortgage payments on hold during the pandemic.

That’s the result of the latest Black Knight Mortgage Monitor Report, a monthly analysis of mortgage data and credit-level performance metrics.

Of the 1.75 million homeowners remaining in pandemic forbearance plans through August 16, only 135,000 have less than 10 percent of the equity stake in their homes – even assuming they skipped the 18-month maximum payments, according to the report to have.

That compares to the depths of the Great Recession of 2007-09, when 40 percent of all mortgage owners had less than 10 percent equity and 28 percent were under water, meaning their home was worth less than what they owned on their mortgage .

“A rising tide is lifting all boats, as they say, including forbearance homeowners – their ability to resume payments after the indulgence is over is likely to be a major factor in the country’s overall economic recovery from COVID-19,” said Black Knight Data & Analytics President Ben Graboske, in a statement.

A moratorium banning foreclosure proceedings against homeowners with government-sponsored mortgages expired on July 31, but there was no rush by lenders to repossess homes of defaulting borrowers, Black Knight noted. The Consumer Financial Protection Bureau has warned lenders that it expects them to reach out to borrowers who are 120 days behind with their payments and give them the option to apply for assistance such as a loan modification before proceeding with a foreclosure .

“Despite the enforcement moratorium that expires at the end of July, the daily performance data show …

As of August 17, only 36,000 lenient people had entered active foreclosure status, and 88 percent of those loans were already in default prior to the pandemic

“However, given the large number of major pandemic defaults remaining, it will be worth keeping a close eye on the volume of foreclosure commencement in the coming months as the loans begin to come out of the moratorium,” the report said.

Depending on the type of loan, some borrowers were entitled to a deferral of up to 18 months during the pandemic. Black Knight estimates a total of 7.5 million borrowers were on a deferral plan during the pandemic – or 15 percent of all mortgage-backed homes.

While most borrowers who have participated in forbearance programs are making payments again (48 percent) or have paid off their mortgages in full (21 percent), nearly 2 million remaining borrowers will expire forbearance in the next few months as of July 31.

Homeowners Leaving Forbearance By Month

Source: Black Knight Mortgage Monitor.

This month alone, forbearance programs for 415,000 homeowners, or about 20,000, expire every working day. Another 240,000 forbearance plans expire in October and 163,000 in November.

Before these homeowners are foreclosed, loan service providers must work them through “complex post-forbearance loss mitigation waterfalls” to determine if they qualify for a loss mitigation plan such as a loan modification or postponement of missed payments, noted Black Knight.

Deferred loan, according to Art

Source: Black Knight Mortgage Monitor.

Black Knight data shows that most of the 1.75 million homeowners who were tolerated in mid-August had loans backed either by the FHA or VA (696,000) or by portfolio or private label lenders ( 520,000) were awarded. The remainder were loans guaranteed by Fannie Mae and Freddie Mac (535,000).

And among the 130,000 homeowners who had less than 10 percent equity in their homes, more than 69 percent were FHA or VA mortgages.

A new loss mitigation waterfall developed by the FHA that would allow eligible borrowers to reduce their monthly payments by 25 percent without providing proof of income should “dramatically improve utilization rates and increase the number of successful changes,” according to an analysis by the Urban Institute. .

Graboske said the fact that most borrowers have strong equity positions “should help limit the volume of non-performing inflows into the property market and create a strong incentive for homeowners to return to mortgage payments – even if modifying them to reduce them.” Need to become. ”

Meanwhile, the massive growth in home equity among borrowers who can afford to make their payments has sparked a resurgence in cash-out refis.

Growth of “Vulnerable Equity”

Source: Black Knight Mortgage Monitor.

With Black Knight data showing house prices rose 20 percent over the past year, “vulnerable equity” – how much money a homeowner can take out of their home while still retaining at least 20 percent of property – hit a record $ 9.1 trillion. That’s a record 37 percent year-over-year increase, providing the average mortgage holder with $ 173,000 in tangible equity.

Mortgage refinancing according to Art

Source: Black Knight Mortgage Monitor.

Homeowners have responded by pulling some of that equity out of their homes. In the second quarter, Black Knight estimates 1.1 million homeowners withdrew cash on refinancing and withdrew more than $ 63 billion in equity – the largest volume of withdrawals since mid-2007.

“With record levels of equity and generally expected interest rate hikes in the coming years, cash-out lending is likely to play a much bigger role in the overall refinancing market,” concluded the Black Knight report.

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