Banks' Mortgage Portfolios Not Matching Hot Pace of Originations

New Equifax Data and Insights Examine Reasons for Divergent Trends

04 Nov, 2015, 08:15 ET from Equifax Inc.

ATLANTA, Nov. 4, 2015 /PRNewswire/ -- Equifax (NYSE: EFX) today provided new data and insights on a major frustration facing some of the nation's leading mortgage bankers: Why their mortgage loan portfolios have stagnated at the same time originations are soaring.

According to data from the latest Equifax National Consumer Credit Trends Report, total mortgage originations climbed to $1.2 trillion through the first nine months of 2015. First mortgage originations are up 63 percent over the same period a year ago, while home equity installment loan originations have jumped 20 percent and HELOCs have risen 23.3 percent to stand at a seven-year high.

At the same time, total mortgage and home equity balances were $8.84 trillion at the end of September, nearly identical to figures from the past eighteen months, according to the Equifax data.

"We have huge growth in mortgage originations with nearly stagnant mortgage balances, which is seemingly illogical," said Amy Crews Cutts, Chief Economist at Equifax. "The reasons are many, including changes in tax policy, fluctuations in interest rates, and regulatory changes affecting mortgage lending."   

Cutts cited several reasons for the disconnect between portfolios and originations, primarily focused on trends in first mortgage balances – by far the largest component of total mortgage balances – that have remained unusually steady for an extended period. The latest Credit Trends data showed that first mortgage balances outstanding peaked at $9.16 trillion in October 2008 and fell to a low of $7.82 trillion in June 2013. Since the beginning of 2014, however, balances have held relatively firm in the range of $8.08 and $8.20 trillion.

Other contributors to sluggish mortgage portfolios, according to Cutts, include:

Loan payoffs  Buoyed by an improved economy and household finances, homeowners have been paying down debt faster through cash-in refinancing or by curtailing their debt by adding extra dollars to each month's payment.

Mortgage refinancing  Consumers continue to refinance existing mortgage debt into lower rates and shorter terms also putting downward pressure on overall mortgage debt.

Severe derogatory  As loans at the end of the foreclosure process are converted to bank-owned real estate, the amount of overall mortgage debt is reduced. The severe derogatory rate (as a share of balances) on first mortgages falling to 4.5 basis points (bps) in September, compared to 6.7 bps a year ago. Severe derogatories are now at the lowest level since August 2007 as a share of both outstanding loans and balances.

Home Purchase Activity In 2014 changes in federal tax policy removed the exemption on short sale debt forgiveness, which suppressed overall homes sales. Sales have recovered in 2015 but they are barely covering principal repayments rather than driving mortgage debt higher.

"Across the nation, we have seen growth in total credit that mirrors the overall improvement of the U.S. economy," said Cutts. "The only exception is mortgage debt, which has remained tepid despite a lively originations market."

Equifax's National Consumer Credit Trends Report reveals population-level debt and lending insights, including originations, balances, number of loans, delinquencies and more from more than 210 million consumers.

About Equifax Equifax is a global leader in consumer, commercial and workforce information solutions that provides businesses of all sizes and consumers with insight and information they can trust. Equifax organizes and assimilates data on more than 600 million consumers and 81 million businesses worldwide.  The company's significant investments in differentiated data, its expertise in advanced analytics to explore and develop new multi-source data solutions, and its leading-edge proprietary technology enables it to create and deliver unparalleled customized insights that enrich both the performance of businesses and the lives of consumers.

Headquartered in Atlanta, Equifax operates or has investments in 19 countries and is a member of Standard & Poor's (S&P) 500® Index.  Its common stock is traded on the New York Stock Exchange (NYSE) under the symbol EFX. In 2014, Equifax was nominated as a Bloomberg BusinessWeek Top 50 company; its CIO was listed as one of the top 100 by CIO magazine; and the company was named to the Fintech 100 list, was recognized as a top 20 company to work for by the Atlanta Journal-Constitution, and was named a 2014 Information Week Elite 100 Winner. For more information, please visit www.equifax.com.  

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SOURCE Equifax Inc.



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