MORTGAGEMONITOR - Black Knight, Inc. · in 2017 (a trend expected to strengthen in 2018), which...

FEBRUARY 2018 REPORT

MONITORMORTGAGE

FEBRUARY 2018MONITORMORTGAGE

Confidential, Proprietary and/or Trade SecretTM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, and/or an affiliate.

© 2018 Black Knight Financial Technology Solutions, LLC. All Rights Reserved.

CONTENTS

1 | FEBRUARY FIRST LOOK RELEASE

2 | DECLINE IN PREPAYMENT ACTIVITY

3 | HURRICANE UPDATE

4 | THE EQUITY LANDSCAPE

5 | APPENDIX

6 | DISCLOSURES




FEBRUARY 2018 OVERVIEW

Each month, the Black Knight Mortgage Monitor looks at a variety of issues related to the mortgage and financial services industry.

This month, as always, we begin with a review of some of the high-level mortgage performance statistics reported in the company’s most recent First Look report, with an update on delinquency, foreclosure and prepayment trends. As February saw the lowest prepayment rate in four years, next we take a closer look at the impact of rising interest rates on prepayment activity. In addition, we provide a breakdown of today’s prepayment drivers.

From there, we undertake a county-level assessment of remaining hurricane-related delinquencies with an update on how those delinquent loan populations are impacting both national and investor level delinquency rates. Finally, we revisit the nation’s equity landscape, providing an update on tappable/lendable equity growth over 2017. In the process, we review lendable equity opportunities in today’s market, while providing insight into the rate of withdrawal of equity in recent years and how that may change in a rising interest rate environment.

In producing the Mortgage Monitor, the Data & Analytics division of Black Knight aggregates, analyzes and reports upon the most recently available mortgage performance data from the company’s McDash loan-level database. For more information on McDash or Black Knight Data & Analytics in general, please call 844-474-2537 or email [email protected].

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FEBRUARY FIRST LOOK RELEASE

Here we have an overview of findings from Black Knight’s ‘First Look’ at February mortgage performance data. This information has been compiled from Black Knight’s McDash loan-level mortgage performance database. You may click on each chart to see its contents in high-resolution.

» The national delinquency rate edged down slightly in February, following January’s sharp decline

» Mortgage delinquencies fell by just 0.21 percent, as the rate of recovery slowed among past due mortgages directly attributable to hurricanes Harvey & Irma

» As compared to January’s 17 percent month-over-month decline in overall hurricane-related delinquencies, February saw just a 5.0 percent reduction

» Serious hurricane-driven delinquencies (90+ days past due, but not yet in active foreclosure) fell 3.0 percent, bringing the total down to 128K in Texas, Florida and Georgia

» After hitting a 12-month high in January, foreclosure starts fell by 25 percent, for a total of 46,700, the third fewest monthly starts since the recession began

» After rising slightly in January, the inventory of loans in active foreclosure rebounded, hitting a new post-recession low of 331K, the fewest since 2006

» The share of seriously delinquent/active foreclosure loans that moved through to foreclosure sale (completion) fell 19 percent from January’s post-holiday-moratoria spike

» Prepayment activity declined 9.0 percent from January (which was already 15 percent below December’s rate)

» February’s single month mortality rate of just 0.72 percent is the lowest seen since 2014

Feb-18Month-over-

month changeYear-over-year

change

4.30% -0.21% 2.10%

0.65% -1.81% -30.30%

46,700 -25.04% -19.34%

0.72% -8.93% -10.58%

1.40% -19.68% -24.97%

2,198,000 -4,000 63,000

697,000 -10,000 56,000

331,000 -6,000 -139,000

2,528,000 -11,000 -77,000

Number of properties that are 30 or more days past due, but not in foreclosure:

Number of properties that are 90 or more days past due, but not in foreclosure:

Number of properties in foreclosure pre-sale inventory:

Number of properties that are 30 or more days past due or in foreclosure:

Total U.S. foreclosure starts:

Monthly Prepayment Rate (SMM):

Foreclosure Sales as % of 90+:

Total U.S. foreclosure pre-sale inventory rate:

12 Month Trend

Total U.S. loan delinquency rate (loans 30 or more days past due, but not in foreclosure):

© 2018 - Black Knight Financial Services, Inc.: Unauthorized use is strictly prohibited. Based on data believed to be reliable, not guaranteed as to accuracy or completeness. Page 1 of 1




http://www.bkfs.com/Data/DataReports/BKFS_MM_Feb2018_Chart01.pdf




» As mentioned, February's single month prepayment rate was the lowest since 2014

» Only three months over the last 15+ years had lower prepayment rates; February 2014 (a similar interest rate and seasonal environment to today) and September and November 2008.

» As we reported last month, the spike in interest rates over the first two months of 2018 have reduced the number of refinance candidates by more than 40 percent

» This has resulted in the smallest such population since late 2008; as such, it's no surprise that prepayments are among the lowest since that time period as well

» As interest rates remain above 4.4 percent, muted levels of prepayment activity are likely to persist

» February is also near the seasonal trough for home sales activity, suppressing housing turnover related prepayments as well

3.0%

4.0%

5.0%

6.0%

7.0%

0.00%

0.50%

1.00%

1.50%

2.00%

2004

-08

2005

-02

2005

-08

2006

-02

2006

-08

2007

-02

2007

-08

2008

-02

2008

-08

2009

-02

2009

-08

2010

-02

2010

-08

2011

-02

2011

-08

2012

-02

2012

-08

2013

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2013

-08

2014

-02

2014

-08

2015

-02

2015

-08

2016

-02

2016

-08

2017

-02

2017

-08

2018

-02

Fred

die

30-Y

ear F

ixed

Rat

e

Prep

aym

ent R

ate

(SM

M)

Prepayment Rate (SMM) Over Time Prepayment Rate (SMM) Freddie 30-Year Fixed Rate

© 2018 - Black Knight Financial Services, Inc.: Unauthorized use is strictly prohibited. Based on data believed to be reliable, not guaranteed as to accuracy or completeness.

As February saw the lowest prepayment rate in four years, we take a closer look at the impact of rising interest rates on prepayment activity. In addition, we provide a breakdown of today’s prepayment drivers. This information has been compiled from Black Knight’s McDash loloan-level mortgage performance database as well as Black Knight’s SiteX™ public records data.

DECLINE IN PREPAYMENT ACTIVITY

http://www.bkfs.com/Data/DataReports/BKFS_MM_Jan2018_Report.pdf



http://www.bkfs.com/Data-and-Analytics/DivisionInformation/Solutions/Real-Estate-Data-Analytics/Pages/Property-Data.aspx

http://www.bkfs.com/Data-and-Analytics/DivisionInformation/Solutions/Real-Estate-Data-Analytics/Pages/Property-Data.aspx




» Prepayment rates on 720+ credit score mortgages have been the lowest among the four credit score groupings analyzed in each of the past three months

» 720+ credit score prepayments dipped below even those of <620 credit score borrowers, which prior to the past three months had the lowest prepay rates for 97 of 98 months

» 720+ credit score prepays have been the slowest prepaying cohort only one other time in 9+ years, a trend that was much more common during the 2004-2007 timeframe

» Back then, higher credit score borrowers were less likely per capita to utilize available equity, suppressing prepayments in that group comparative to their peers

» Borrowers with credit scores between 620 and 719 are currently prepaying at the highest rate

» Factors driving the shift include high credit score borrowers taking fewer rate/term refinances than borrowers with slightly lower credit scores in addition to tapping equity and selling homes at a slower pace

» Housing turnover was the primary driver behind single month mortality (SMM) of 720+ credit score mortgages in Q4 2017

» The single largest driver for sub-620 credit score borrowers is still default

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

Prepayment Rate (SMM) By Credit Score Bucket <620 620-679 680-719 720+






» Matching Black Knight's McDash loan level performance data to public records allows us to estimate why a prepayment took place

» The merged data shows very noticeable and meaningful shifts not only in prepayment activity, but the drivers behind that activity over time

» Prepayment drivers are constantly changing due to both seasonal and rate-driven factors throughout time

» Mortgage market participants heavily affected by prepayment activity should endeavor to understand these changes, especially as home sales are on an upward trend at a time of rising interest rates

» In quarter-end observations for 2017, housing turnover accounted for 47 percent of all prepayment activity on average (up from 29 percent in 2016)

» Housing turnover made up half of all prepayment activity in Q2 2017, the highest such share of SMM since Black Knight began tracking the data point in 2005

» Given the recent rise in interest rates and the decline in eligible refinance candidates, it’s likely that home sale-driven prepayment activity will surpass the 50 percent mark again in mid-2018

» Rising interest rates limited the rate/term refinance-driven share of prepayments in 2017 (a trend expected to strengthen in 2018), which fell from 37 percent of SMM in 2016 to 18 percent on average in 2017

» Cash-out activity (as with originations) now drives more prepayment activity than rate/term refinances, accounting for 28 percent of all SMM


RateTerm Refi 19%

Cash-out Refi 28%

Sale of Home (Housing Turnover)

37%

Curtailment 10%

Default 6%

Distribution of December 2017 Prepayment Activity (SMM)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Distribution of Prepay Activty (SMM) by Cause of Prepayment Rate/Term Refi Cash-out Refi Sale of Home (Housing Turnover) Curtailment Default




http://www.bkfs.com/Data/DataReports/BKFS_MM_Feb2018_Chart04a1.pdf





» Prepayment activity due to housing turnover is the most seasonally affected component, rising and falling in the same manner as do home sales increasing in spring and summer and falling during the late fall and winter

» Home sales accounted for 56BPS of SMM at the end of Q2 2017, the highest quarter-end SMM rate due to housing turnover since 2006

» As home sales become the primary driver of prepayment activity, seasonality will have a stronger impact on monthly SMM, creating greater prepayment rate fluctuation

» Rate/term refinance-driven prepayments are obviously more closely attuned to interest rate movements, rising as rates drop and declining as they rise

» SMM attributed to rate/term refinances dropped to its lowest level in nearly 10 years in Q1 2017 and has remained relatively consistent in each of the past 4 quarter-end readings

» Cash-out driven prepays outpaced that of rate/term refis in each quarter in 2017, the first time that has happened since 2007

» As rising interest rates tend to dampen rate/term refinances to a greater extent than cash-out refis, the gap between cash-out and rate/term driven SMM is expected to further widen in 2018

» Rate/term refis had largely been the leading driver of prepayment activity in recent years; they’ve since fallen to third largest driver, behind housing turnover and cash-outs


0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

SMM Attributed to Home Sales (Housing Turnover)

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

SMM Attributed to Rate/Term Refinance

http://www.bkfs.com/Data/DataReports/BKFS_MM_Feb2018_Chart04b1.pdf

http://www.bkfs.com/Data/DataReports/BKFS_MM_Feb2018_Chart04b2.pdf




» Overall, remaining delinquencies from Hurrican Harvey declined by 9.0 percent in February, leaving 38.6K delinquent loans from the storm

» Serious storm-related delinquencies declined by a more modest 3.0 percent for the month, with 37.3K such loans remaining 90 or more days past due

» Approximately 97 percent of Harvey-related delinquencies are now 90 or more days past due

» The 90+ day delinquency rate for Harvey-affected areas is 4.45 percent, more than 4x the national average

» At 21.5K loans 90 or more past due, Harris County, Texas has the largest population of seriously delinquent loans of any single county attributed to 2017's major hurricanes

» Harris County alone accounts for nearly 60 percent of all Harvey-related serious delinquencies

» Just over 3.0 percent of all homes with a mortgage in Harris county are still 90 or more days past due as a result of the storm

» Although Harris County has the largest volume of serious delinquencies, there are 17 Texas counties that have higher Harvey-related serious delinquency rates per capita (>3.0 percent)

» Refugio and Orange counties lead with more than 7.0 percent of all mortgaged properties 90 or more days past due as a result of the storm

110

130

70

320

40

340

30

0

30

60

420

1,380

0

1,850

80

18010

20

40

10

960

50

20

21,490

23040

20

10

2,0604,690

20

20

30240

40

30

1,910

50

11050

140

10

180

310

30

640

10

210

2,180

4060

100

0

0

2,170

1,340

150

3,9803,560

2,220

5,560

2,340

6,890

80

370

970

450

1,320

1,280

100

4,210

1,990

0

340

5,790

550

590

130

60

20

30

390

4,840

30

90

90

2,260

1,250

320

570

12,170

2,420

70

70

590

Sheet 5Hurricane 90+

05,000

10,00015,00021,494

0.0% 4.5%

% of Active Mtgs

Map based on Longitude (generated) and Latitude (generated). Color shows sum of % of Active Mtgs. Size shows sum of Hurricane 90+. Themarks are labeled by sum of Hurricane 90+ Rounded. Details are shown for State and County.

13,300

34,900 40,100 38,500 37,300

0K

30K

60K

90K

120K

150K

180K

2017-08 2017-09 2017-10 2017-11 2017-12 2018-01 2018-02

Hurricane Related Delinquencies - Texas Severe Delinquencies (90+ Days) Early Stage DQs (<90 Days)

HURRICANE UPDATE

Here, we provide a county-level assessment of remaining hurricane-related delinquencies with an update on how those delinquent loan populations are impacting both national and investor level delinquency rates. This information has been compiled from Black Knight’s McDash loan-level mortgage performance database. You may click on each chart to see its contents in high-resolution.

http://www.bkfs.com/Data/DataReports/BKFS_MM_Feb2018_Chart05a.pdf


http://www.bkfs.com/Data/DataReports/BKFS_MM_Feb2018_Chart05b.pdf




» While Irma-attributed delinquencies are relatively widespread across Florida, Miami-Dade and Broward counties account for nearly one third of all storm-related serious delinquencies, with over 28K in those two counties alone

» Approximately 4.0 percent of all mortgaged properties in those two counties remain 90 or more days past due as a result of Irma

» In five counties more than 5.0 percent of all mortgaged properties remain 90 or more days past due as a result of the storm; Glades, Monroe, Union, Hendry and Hardee

» Florida accounts for 98 percent of all Irma-related serious delinquencies, but there are an additional 1.4K such loans in Georgia as well

» The population of both delinquent and seriously delinquent loans resulting from Irma declined by a meager three percent in February

» Over 100K Irma-related delinquencies and almost 91K serious delinquencies remain

» The serious delinquency rate for Irma-affected areas is 4.05 percent, over 3.5X the national average

110

130

70

320

40

340

30

0

30

60

420

1,380

0

1,850

80

18010

20

40

10

960

50

20

21,490

23040

20

10

2,0604,690

20

20

30240

40

30

1,910

50

11050

140

10180

310

30640

10

210

2,180

4060

100

0

0

2,170

1,340

150

3,9803,560

2,220

5,560

2,340

6,890

80

370

970 16,280

450

1,320

1,280

100

4,210

1,990

0

340

5,790

550

590

130

60

20

30

390

4,840

30

90

90

2,260

1,250

320

570

12,170

2,420

70

70

590

Sheet 2

0.0% 4.5%

% of Active Mtgs

Hurricane 90+0

5,00010,00015,00021,494

Map based on Longitude (generated) and Latitude (generated). Color shows sum of % of Active Mtgs. Size shows sum of Hurricane 90+. The marks are labeledby sum of Hurricane 90+ Rounded. Details are shown for State and County.

11,000 19,700

64,900

102,500 93,600 90,700

0K

20K

40K

60K

80K

100K

120K

140K

160K

180K

2017-08 2017-09 2017-10 2017-11 2017-12 2018-01 2018-02

Hurricane Related Delinquencies Florida & Georgia

Severe Delinquencies (90+ Days) Early Stage DQs (<90 Days)

HURRICANE UPDATE






» As of February nearly 139K hurricane-related delinquencies remain in the mainland U.S., 128K of which are seriously delinquent

» Though down from peaks of nearly 229k and 143k respectively, a strong upward pull on delinquency metrics continues at the national level

» Without the hurricane effect, 30-day delinquencies would be down 76K from last year rather than up 63K and serious delinquencies down 72K year-over-year, rather than up by 56K

» The national non-current rate is 4.94 percent as of February, but excluding hurricane-related delinquencies that number is 4.67 percent, meaning that the 2017 hurricane season is pulling the national non-current rate up by 27BPS

» The impact is similar with the serious delinquency rate; 1.36 percent, but 1.11 percent when excluding hurricanes, for an upward pull of 0.25 percent

» It remains clear, especially with the modest improvements seen in February, that the lingering effects of the 2017 hurricane season will be felt throughout 2018 not only at the local levels, but in national performance metrics as well

» Note: numbers above exclude Puerto Rico, as those mortgages are excluded from Black Knights national delinquency figures

0%

2%

4%

6%

8%

10%

12%

14%

2012

-02

2012

-04

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-06

2012

-08

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-10

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-12

2013

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-06

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-12

2017

-02

2017

-04

2017

-06

2017

-08

2017

-10

2017

-12

2018

-02

National Mortgage Performance Non-Current% w/out Hurricane Effect 90+ Day DQ% w/out Hurricane Effect

+0.

02%

+0.

27%

+0.

45%

+0.

44%

+0.

34%

+0.

28%

+0.

27%

+0.

%

+0.

03%

+0.

06%

+0.

2%

+0.

28%

+0.

26%

+0.

25%

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18

Upward Pull on National DQ Rates Attributed to Hurricanes Harvey and Irma

Non-Current % 90+ Day DQ%


HURRICANE UPDATE






» Hurricane-related impact to GNMA securities has become more muted in recent months

» A large number of hurricane-related delinquent mortgages have been repurchased out of those securities, lowering the upward pull on GNMA security delinquency rates

» Black Knight estimates approximately 30K seriously delinquent mortgages associated with the recent storms have been repurchased out of GNMA pools

» This, in turn, is increasing the storms' impact on portfolio loans

» Over 43K seriously delinquent mortgages are held in portfolios (non-securitized) as of February, a number that has continued to rise in recent months

» We estimate that hurricane related delinquencies currently inflate portfolio delinquency rates by 43BPS, the largest impact on a percentage basis of any investor category

» GNMA pools now have the lowest impact on a percentage basis, with hurricane-related delinquencies only pulling DQ rates up by 12BPS nationwide

» The largest volume of hurricane delinquencies are still held in GSE securities, a number estimated at nearly 72K

+0.

19%

+0.

51%

+0.

18%

+0.

54%

+0.

35%

+0.

77%

+0.

31%

+0.

81%

+0.

35%

+0.

68%

+0.

36%

+0.

79%

+0.

24%

+0.

19%

+0.

41%

+0.

47%

+0.

24%

+0.

12%

+0.

43%

+0.

36%

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.80%

0.90%

GSE GNMA Portfolio Private

Upward Pull On Non-Current Rates - By Investor Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18


HURRICANE UPDATE





1,988

728285

3,321

3,614

308 264

144 46

928455

209

1,338

1,390

1,436

314

328

420

5,982

196

367

178

967126

214

1,507107

171

134

191

431

351

221

574

71

10

584

410248

666

34141

151

709

702

101

456

914174

377

958

114

707104

179751

26333

176

490

600

150252

567

777

318

2,656

668

217

466

294

1,112

204

253

186

514

204

53

Sheet 2Hurricane 90+

02,0004,0005,982

0.00000 0.04500

% of Active Mtgs

Map based on Longitude (generated) and Latitude (generated). Color shows sum of % of Active Mtgs. Size shows sum of Hurricane 90+. The marks are labeled by sum of Hurricane 90+. Details are shown for State and County.

4,800 8,900 20,100

68,000

49,400 48,800

0K

20K

40K

60K

80K

100K

120K

2017-09 2017-10 2017-11 2017-12 2018-01 2018-02

Hurricane Related Delinquencies - Puerto Rico Severe Delinquencies (90+ Days) Early Stage DQs (<90Days)

HURRICANE UPDATE

» Serious delinquencies attributed to hurricanes Irma and Maria in Puerto Rico edged slightly lower this month (a decline of just over 1.0 percent) after a strong decline in January

» Hurricane-related delinquencies in general actually rose slightly from January, specifically in portfolio-held mortgages

» Portfolio-held loans saw the strongest declines last month; February's uptick may be a sign of recidivism following borrower assistance put in place in January

» As of February more than 58K hurricane related delinquencies remain with 48.8K of those seriously delinquent (down from 49.4K last month)

» The largest concentrations of serious delinquencies attributed to the storms are in the northeast in San Juan and surrounding areas

» However, serious delinquencies attributed to the 2017 hurricanes account for at least 10 percent of all active mortgages in every municipality across the island

» Some of the hardest-hit areas are seeing hurricane-related serious delinquency rates of 20 percent and higher

» In total, 16 percent of all mortgaged properties on the island remain 90 or more days past due as a direct result of the storms






» 2017 saw the greatest calendar-year rise in lendable/tappable equity on record, increasing by $735 billion over the course of the year

» Tappable equity grew by $78B in Q4, resulting in a 16 percent year-over-year increase in total available equity

» Q4 increased a modest 1.5 percent — not uncommon in the final quarter of the year as home price appreciation slows — and outpaced Q4 gains in 2016 and 2015

» $5.4 trillion in total tappable equity is the highest dollar amount on record and 10 percent above the prior 2005 peak

» At the start of 2018, some 55 percent of all tappable equity was held by borrowers with first lien interest rates below the going 30-year rate

» Following the nearly 50BPS rise in interest rates seen since the start of the year, that share has ballooned to 75 percent

» While rising rates tend to dampen utilization of equity in general, the market is poised for a strong shift toward HELOCs, as they allow borrowers to take advantage of growing equity while holding on to historically low first lien interest rates

0%

3%

6%

9%

12%

15%

18%

Distribution of Tappable Equity (By First-Lien Interest Rate)

75% of the nation's tappable equity is held by borrowers with

first-lien interest rates below 4.5%, making HELOCs an

attractive option

$4.2

9

$4.9

1

$4.6

3

$3.7

6

$2.8

3

$2.6

$2.3

7

$2.2

3 $2.5

6

$3.1

2 $3.5

6

$4.1

2

$4.6

9

$5.4

2

$

$1

$2

$3

$4

$5

$6

2004

-12

2005

-12

2006

-12

2007

-12

2008

-12

2009

-12

2010

-12

2011

-12

2012

-12

2013

-12

2014

-12

2015

-12

2016

-12

2017

-12

Tappable Equity of Mortgage Holders (in $Trillions)

Here, we review lendable equity opportunities in today’s market, providing insight into the rate of withdrawal of equity in recent years and how that may change in a rising interest rate environment. This information has been compiled from Black Knight’s McDash loan-level mortgage performance database. You may click on each chart to see its contents in high-resolution.

THE EQUITY LANDSCAPE







» Tappable equity continues to be geographically concentrated, with the top 10 markets holding half of all available equity

» California alone holds 39 percent of the nation's total tappable equity - nearly 7X the next closest state

» San Francisco and Los Angeles led 2017 growth by dollar amount, with over $80B in lendable equity growth in each of those metros, resulting in 20 percent and 12 percent annual increases, respectively

» On a percentage basis, San Jose, Seattle and Las Vegas each saw greater than 30 percent growth in tappable equity

» 96 of the nation's 100 largest markets saw lendable equity growth in 2017

Tappable Equity By CBSA






» Despite 2017 interest rates being approximately 35BPS higher on average than in 2016, modest increases were observed in equity withdrawn via both cash-out refinances and home equity lines of credit (HELOCs)

» An estimated $262 billion in tappable equity was withdrawn in 2017 via cash-out and HELOCs, reaching a new post-recession peak

» Despite rising equity withdrawal volumes, Americans withdrew less than 1.25 percent of all tappable equity available in Q4 2017 – a four-year low

» Of that total, 55 percent was tapped via HELOCs, the second lowest such share since the housing recovery began

» Following each of the past two iinstances of interest rates spiking over a short period of time (late 2013, late 2016), equity withdrawal via both cash-out refinances and HELOCs declined, with cash-out volumes falling more sharply

» While rising interest rates may act as a headwind for equity withdrawal in general, they also likely signal a corresponding increase in the HELOC share of equity withdrawals

» The average cash-out refinance borrower had an average credit score of 744 (down from 750 in 2016) and pulled $68,000 in equity (up from $64,000) with a resulting loan-to-value ratio (LTV) of 66 percent

» Cash-out refinance borrowers saved an average of 44BPS on their pre-refi interest rate (as compared to 79BPS in 2016)

0.0%

0.5%

1.0%

1.5%

2.0%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2012 2013 2014 2015 2016 2017

$0

$10

$20

$30

$40

$50

$60

$70

$80

Equity Tapped By Quarter

Equity Tapped via HELOC ($B) Equity Tapped via Cash-out Refi ($B) % of Available Equity Tapped

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

40%

45%

50%

55%

60%

65%

70%

75%

80%

HELOC Share of Total Equity Tapped HELOC Share of Equity Tapped (left axis) Average Freddie 30-Year Fixed Interest Rate (right axis)

Total HELOC origination volumes sourced from ‘Equifax Credit Trends’ report. ‘Equity Tapped via HELOC ($B)’ is estimated by applying the cashout/refi blend of HELOC originations observed in the McDash Home Equity loan level database

‘HELOC Share of Equity Tapped’ is calculated by dividing ‘Equity Tapped via HELOC’ by the sum of ‘Equity Tapped via HELOC’ and ‘Equity Tapped via Cash-out Refi’







» Here, we categorize borrowers with interest rates below 4.5 percent as good HELOC candidates, and those at or above 4.5 percent as good cash-out refinance candidates

» The majority of total tappable equity – approximately $2.8 trillion – is held by borrowers with credit scores of 760 or higher and first-lien interest rates below today’s prevailing rate

» The segment accounts for 40 percent of all borrowers with tappable equity and an impressive 53 percent of actual tappable equity itself, creating a large pocket of low-risk HELOC candidates

» Eighty-five percent of "HELOC Candidate" total equity is held by borrowers with credit scores of 720 or higher

» This provides very little incentive for lenders to loosen HELOC credit requirements, while boding well for HELOC credit quality moving forward

» Credit score distributions are a little lower among cash-out refinance candidates

» As these borrowers have interest rates above todays prevailing rates, they skew toward more aged originations, which tend to have lower average credit scores than more recent originations

» Approximately 40 percent of cash-out candidates have credit scores above 760, with about half of all such tappable equity held by that group

$0.0T

$0.5T

$1.0T

$1.5T

$2.0T

$2.5T

$3.0T

Below 620 620 to 679 680 to 719 720 to 759 760Plus

Tappable Equity Distributed by Borrower's Current Interest Rate and Credit Score

First-Lien Rate < 4.5% First-Lien Rate >= 4.5%

$2.8T in tappable equity is held by borrowers with at credit score of 760 or higher and a first-lien interest rate below today’s prevailing rate

creating a large pocket of low-risk HELOC candidates






» As was reported in last month’s Mortgage Monitor, 2017 saw 29 percent fewer refinance loans originated than in 2016

» The data shows a very significant difference between declines in traditional rate/term vs. cash-out refinance originations

» Rate/term refis declined by 49 percent from 2016, dropping from over 2.1M in 2016 to just 1.1M last year

» At the same time, cash-out refinance activity held almost steady, falling from 1.64M to 1.6M for a 2.0 percent annual decline

» In Q1 2017, cash-outs accounted for the majority of refinance lending for the first time since 2008; as of Q4, the share climbed as high as 62 percent

» Given the continued rise in tappable equity coupled with rising interest rates, it is likely that share will continue to rise, particularly given the 40 percent reduction in traditional rate/term refinance candidates thus far this year

62%

0%

20%

40%

60%

80%

100%

0.0

0.5

1.0

1.5

2.0

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

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Q2

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Q4

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Q3

Q4

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Q2

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Q1

Q2

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Q4

Q1

Q2

Q3

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Q4

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Q2

Q3

Q4

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Q2

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Q2

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Q1

Q2

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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Cas

h-ou

t Sha

re o

f Firs

t-Lie

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efis

(By

Cou

nt)

Firs

t-Lie

n R

efin

ance

Orig

inat

ions

in M

illio

ns

First-Lien Refinance Activity Cash-out Refi Originations (left axis) Rate/Term Refi Originations Cash-out Share of First-Lien Refis (right axis)








» Monitoring consecutive mortgages on the same property, Black Knight is able to calculate the share of borrowers who refinance and subsequently remain in a servicer's portfolio post-refi

» With increased competitionand HARP originationvolumes tailing off, retentionrates have been on thedecline, hitting their lowestpoint in 10 years in Q2 2017 at22 percent

» Though rebounding late in theyear, retention rates ended2017 three percentage pointsbelow last year's level

» Over time, retention rateshave declined as alongwith refinance incentiveand origination volumesin general; in times whenincentive has rebounded,retention rates have tendedto follow suit

» If this trend holds, 2018 couldnot only be a challengingyear for refinance originationvolumes, but especiallychallenging for servicerslooking to build/retain theirportfolio

» Competition will be fiercefor a dwindling supplyof remaining refinancecandidates and portfolioretention will become bothmore important and difficultthan ever

-

400,000

800,000

1,200,000

1,600,000

2,000,000

0%

10%

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40%

50%

60%

2005

-Q2

2005

-Q3

2005

-Q4

2006

-Q1

2006

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2006

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2006

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2011

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2011

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2012

-Q1

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2012

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2012

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2013

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2013

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2013

-Q4

2014

-Q1

2014

-Q2

2014

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2014

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2015

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2015

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2015

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2016

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2016

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2016

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2016

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2017

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2017

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2017

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2017

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Qua

rter

ly R

efin

ance

Orig

inat

ion

Volu

me

Serv

icer

Ret

entio

n R

ate

Servicer Retention Rate Share of Refinance Transactions Wherein Servicer Retains Borrower in Portfolio Through Refi Process

Refinance Origination Volumes Servicer Retention Rate






APPENDIX

» February 2018 Data Summary

Feb-18Monthly Change

YTD Change

Yearly Change

Delinquencies 4.30% -0.21% -0.21% 2.10%

Foreclosure 0.65% -1.81% -1.81% -30.30%

Foreclosure Starts 46,700 -25.04% -25.04% -19.34%

Seriously Delinquent (90+) or in Foreclosure

2.01% -1.52% -1.52% -8.31%

New Originations (data as of Jan-18)

439K -20.1% -20.1% -11.7%

Jan-18 Dec-17 Nov-17 Oct-17 Sep-17 Aug-17 Jul-17 Jun-17 May-17 Apr-17 Mar-17 Feb-17 Jan-17

Delinquencies 4.30% 4.31% 4.71% 4.55% 4.44% 4.40% 3.93% 3.90% 3.80% 3.79% 4.08% 3.62% 4.21%

Foreclosure 0.65% 0.66% 0.65% 0.66% 0.68% 0.70% 0.76% 0.78% 0.81% 0.83% 0.85% 0.88% 0.93%

Foreclosure Starts 46,700 62,300 44,500 47,800 50,200 45,200 54,700 53,300 56,500 55,800 52,800 60,300 57,900

Seriously Delinquent (90+) or in Foreclosure

2.01% 2.04% 2.06% 1.97% 1.84% 1.83% 1.85% 1.87% 1.90% 1.93% 2.00% 2.05% 2.19%

New Originations 439K 550K 549K 602K 574K 636K 580K 654K 619K 526K 570K 448K

4.21

%

3.62

%

4.08

%

3.79

%

3.80

%

3.90

%

3.93

%

4.40

%

4.44

%

4.55

%

4.71

%

4.31

%

4.30

%

Total Delinquencies

448K

570K

526K

619K

654K

580K

636K

574K

602K

549K

550K

439K

New Originations






APPENDIX

» Loan counts and average days delinquentMonth

TOTAL ACTIVE COUNT

30 DAYS 60 DAYS 90+ DAYS FC Total Non-Current

FC Starts

Average Days Delinquent

for 90+

Average Days Delinquent

for FC

Ratio of 90+ to FC

1/31/2000 40,192,541 1,176,769 296,820 374,724 234,074 2,082,387 55,426 241 331 160.1%1/31/2001 42,340,690 1,321,334 346,119 438,737 223,602 2,329,792 63,753 211 304 196.2%1/31/2002 43,454,963 1,353,355 380,012 515,985 340,401 2,589,754 90,160 219 289 151.6%1/31/2003 44,275,177 1,331,861 365,393 494,180 344,037 2,535,471 101,211 231 297 143.6%1/31/2004 44,769,847 1,186,809 352,515 501,740 321,294 2,362,357 77,360 269 344 156.2%1/31/2005 47,706,128 1,197,062 339,920 458,719 276,745 2,272,446 50,922 242 324 165.8%1/31/2006 50,900,620 1,242,434 387,907 542,378 258,613 2,431,332 76,477 207 308 209.7%1/31/2007 53,900,458 1,425,030 468,441 551,439 393,973 2,838,883 117,419 203 267 140.0%1/31/2008 55,478,782 1,743,420 676,266 950,639 813,560 4,183,885 195,033 190 256 116.8%1/31/2009 55,788,441 2,001,314 932,436 1,878,981 1,321,029 6,133,760 250,621 193 323 142.2%1/31/2010 55,098,009 1,945,589 903,778 2,972,983 2,068,572 7,890,922 292,308 253 418 143.7%1/31/2011 53,861,778 1,750,601 746,634 2,078,130 2,245,250 6,820,615 277,374 333 527 92.6%1/31/2012 52,687,781 1,592,463 652,524 1,796,698 2,205,818 6,247,503 223,394 395 666 81.5%1/31/2013 51,229,692 1,464,583 587,661 1,551,415 1,742,689 5,346,348 156,654 460 803 89.0%1/31/2014 50,380,779 1,341,074 529,524 1,278,955 1,213,046 4,362,599 97,467 486 935 105.4%1/31/2015 50,412,744 1,238,453 465,849 1,060,002 884,901 3,649,204 93,280 509 1,031 119.8%1/31/2016 50,541,353 1,298,682 444,594 831,284 659,237 3,233,797 71,900 495 1,047 126.1%1/31/2017 50,871,357 1,108,712 389,768 663,521 480,598 2,642,599 70,357 454 1,013 138.1%1/31/2018 51,155,753 1,083,162 412,676 706,623 336,613 2,539,074 62,312 364 932 209.9%2/28/2018 51,154,575 1,114,486 386,518 696,802 330,505 2,528,312 46,720 367 930 210.8%

© 2018 - Black Knight Financial Services, Inc.: Unauthorized use is strictly prohibited. Based on data believed to be reliable, not guaranteed as to accuracy or completeness.Page 1 of 1





APPENDIX

State Del % FC % Non-Curr %

Yr/Yr Change in

NC%State Del % FC % Non-

Curr %

Yr/Yr Change in

NC%State Del % FC % Non-

Curr %

Yr/Yr Change in

NC%

National 4.3% 0.65% 4.9% -3.8% National 4.3% 0.65% 4.9% -3.8% National 4.3% 0.65% 4.9% -3.8%

MS 10.0% 0.7% 10.7% -3.4% SC * 5.0% 0.7% 5.8% -9.1% VA 3.6% 0.3% 3.9% -7.9%

LA * 7.9% 1.2% 9.1% -6.3% MD * 4.9% 0.8% 5.7% -6.0% NV 2.9% 0.9% 3.9% -14.1%

FL * 7.1% 1.1% 8.2% 38.3% TN 5.2% 0.3% 5.6% -8.7% WY 3.4% 0.4% 3.8% -7.9%

AL 7.0% 0.5% 7.5% -3.8% OH * 4.5% 0.9% 5.4% -7.3% AK 3.4% 0.4% 3.8% 5.6%

WV 6.2% 0.7% 7.0% -6.6% VT * 4.0% 1.1% 5.1% -7.2% DC 2.7% 0.8% 3.6% -20.6%

TX 6.1% 0.4% 6.5% 11.1% NM * 4.1% 1.1% 5.1% -11.9% NE * 3.2% 0.3% 3.5% -2.2%

ME * 4.7% 1.7% 6.4% -12.4% NC 4.5% 0.4% 5.0% -8.9% AZ 3.0% 0.3% 3.3% -3.9%

RI 5.4% 1.0% 6.3% -10.5% KS * 4.3% 0.6% 4.9% -5.6% UT 2.8% 0.2% 3.0% -13.0%

AR 5.7% 0.6% 6.3% -5.3% HI * 3.2% 1.7% 4.9% -14.9% SD * 2.3% 0.5% 2.8% -6.0%

PA * 5.3% 0.9% 6.3% -5.2% KY * 4.1% 0.8% 4.9% -8.0% CA 2.6% 0.2% 2.8% -10.2%

IN * 5.3% 0.9% 6.2% -6.2% IL * 3.9% 0.8% 4.8% -7.4% MT 2.3% 0.4% 2.7% -7.4%

NY * 4.2% 1.9% 6.1% -14.7% MA 4.0% 0.7% 4.7% -13.0% MN 2.4% 0.2% 2.6% -5.9%

OK * 5.1% 1.0% 6.1% -7.9% MO 4.2% 0.4% 4.5% -8.6% ID 2.3% 0.3% 2.6% -12.7%

GA 5.7% 0.4% 6.1% -3.3% MI 4.2% 0.2% 4.5% -2.8% OR 2.1% 0.4% 2.5% -18.0%

DE * 5.1% 1.0% 6.0% -7.2% NH 3.8% 0.4% 4.2% -8.1% WA 2.1% 0.4% 2.5% -18.0%

NJ * 4.5% 1.5% 6.0% -19.8% WI * 3.5% 0.7% 4.2% -9.4% ND * 1.9% 0.6% 2.5% 5.8%

CT * 4.8% 1.1% 5.9% -7.1% IA * 3.4% 0.6% 4.0% -6.5% CO 1.9% 0.1% 2.1% -11.9%* - Indicates Judicial State


» State-by-state rankings by non-current loan population





DISCLOSURESPlease refer to the links below for specific disclosures relating to Product Definitions, Metrics Definitions and Extrapolation Methodology.

>> PRODUCT DEFINITIONS>> METRICS DEFINITIONS>> EXTRAPOLATION METHODOLOGY

http://www.bkfs.com/Data/DataReports/BKFS_MM_Disclosures.pdf

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