Mortgages Up, But Home Values Continue Decline
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- Kara Johnson | August 09, 2010
U.S. mortgage lenders originated more loans in the second quarter of the year than the first, even as home values continued to decline, according to a pair of reports issued today.
Mortgage originations increased 6.5 percent in the second quarter of 2010, according to an analysis by MortgageDaily.com. At the same time, home values declined 0.6 percent to a median of $182,460, according to the newest Zillow Home Value Index, also released today.
"Recent data indicate loan pipelines have strengthened, suggesting third-quarter originations will come in even stronger," said Mortgage Daily Publisher Sam Garcia. "Also, many borrowers might see a psychological threshold being broken as fixed rates teeter below 4 percent -- potentially fueling demand for more refinance activity."
Refinances boost gains
It appears the increase in new loans was primarily due to mortgage refinancing, as opposed to home purchases, although the Mortgage Daily report did not break down new loans by type. Other sources have reported that mortgage loans for home purchases rose early in the quarter, then fell sharply following the April 30 deadline for the homebuyer tax credit.
Overall mortgage originations were down 37.9 percent from the second quarter of 2009, when loan volume was dramatically boosted by the first wave of refinancings in the wake of the Federal Reserve’s actions to drive down interest rates.
Reverse morgages down sharply
Reverse mortgages also declined significantly in the second quarter of the year. The total number of Home Equity Conversion Mortgages (HECMs) was down 29 percent, to 15,369 new loans, from 21,676 in the first quarter. Total claim amounts were down to $3.9 billion, from $5.9 billion in the first quarter of the year.
The erosion of home equity caused by falling home values has put a huge crimp in reverse mortgage activity. HECM volume and clam amounts are approximately half of what they were one year ago, down from 28,689 and $8.1 billion in the second quarter of 2009, according to the MortageDaily report.
Today’s Zillow report put home values down 3.2 percent from the second quarter of 2009.
Fewer homeowners "underwater"
At the same time, Zillow reported that the number of “underwater” homeowners, those owing more on their mortgages than their home is worth, declined in the second quarter of the year. Borrowers in negative equity declined to 21.5 percent of all homeowners, down from 23.5 percent in the first quarter and 23 percent one year ago.
The decline in underwater borrowers may be linked to lenders clearing out a backlog of foreclosures, which have been on the rise as financially stressed homeowners exhaust their options for avoiding foreclosure. Zillow reported that foreclosures hit a new high in June, with just over one home in 1,000 (0.11 percent) in some stage of foreclosure.
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