Black Knight’s August Mortgage Monitor reported a 68% increase in cash-out refinances. This is welcome news to borrowers, who on average have tapped $67,000 in equity.
Rising home prices benefit borrowers in many ways, creating flexibility for people who want to stay in a home or a profitable exit for borrowers with financial problems.
Investors benefit as well since loans with positive equity default at a much lower rate than underwater loans. Beyond that, refinances help create faster mortgage payments – a boon to investors in discount bonds.
As Black Knight Data & Analytics Senior Vice President Ben Graboske explained, borrowers have been capitalizing on increased equity available in their homes and still historically low rates.
“In the second quarter of 2015, we saw cash-out refinance volumes rise almost 70 percent from the same period last year,” said Graboske. “While this is the highest volume in cash-out refinances we’ve seen in five years, it’s still nearly 80 percent below the peak in Q3 2005. Even so, it’s clear that borrowers have been capitalizing on the increased equity available to them. As we reported in last month’s Mortgage Monitor, total equity of mortgage holders has risen by about $1 trillion over the last year, and ‘tappable’ equity stands at $4.5 trillion.
At ROCKHOUSE we continue to buy high quality loans at a discount price. We believe the pool of ‘tappable’ equity will continue to grow and that faster prepayments will drive returns higher for certain classes of investments.
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