There Are Fewer Than 45,000 Mortgage Refi Candidates Left in the US

M Hanson ( Original )
MAY 17, 2018

It’s the “surprise” that everyone should have seen coming from 10 years away.

The mortgage refi market is deader than dead. Of course it is. Every homeowner with a pulse and an ounce of common sense refinanced at their leisure during the Fed’s ZIRP-a-thon of the past 10 years. How dead is it?

Try less than 45,000 (that’s not a typo) logical refi candidates remaining in the United States. “Of the nearly 28 million borrowers with 30-year mortgages originated in 2012 or later, fewer than 45,000 have 75 basis points of interest rate incentive to refinance while also meeting broad-based eligibility requirements.”

So what’s next? What’s always next. As a mortgage lender, you just care about the next commission. Which means you need to sell mortgages. Which means you have to start loaning to people who are not creditworthy. Which means more subprime loans to bad credit risks. What could possibly go wrong?

Mortgage State of Play. Below are a few recent headlines and datapoints higlight why revolutionary change will happen…

Mortgage market in turmoil/transition; rates rising; heavy competition & high fixed overhead
Cost to originate in Q1’18 at $8,475; up 67% from ‘12 to second highest level on record; profit at $237 per loan, down from $929 on previous three q’s (MBA Q1/18)
Refi index back to Armageddon Oct 2008 levels & only 30% of originations (MBA 5/18)
Of the 28M loans originated since 2011, only 45,000 have 75bps of refi incentive and meet eligibility requirements. (Black Knight 5/18)
Tappable home equity at $5.5T at end of ’17; most on record (Black Knight 5/18)
$13.8B in home equity cashed out in 3q’17…in the basement relative to 2003-2007 (FHLMC)
HELOC’s down for third consec quarter; down 12% from 4q’17 and 4% from 1q’17. HELOANs have also fallen for past three q’s; down 70% from 2006. (Scotsman Guide)
- Over half of HELOC’s held by >760 scores; 680 score min needed; last quarter avg score = 770
Some lenders/investors are itching to push out the risk curve (echo’s of 2003)
Some lenders want to change the game: Figure – Mike Cagney of SoFi fame – raised $50M for Home Equity start-up with a Blockchain backbone touting “5 MINUTE HELOCs”