It appears that U.S. homeowners are taking advantage of skyrocketing home values, with mortgage lenders originating 1.1 million cash-out refinance loans in second-quarter 2021, according to Black Knight.
That’s the most cash-out loans for any quarter in nearly 15 years, per the company’s Mortgage Monitor report. By dollar volume, homeowners withdrew more than $63 billion in equity during the quarter, most since mid-2007.
And while originations fell 5% from the first quarter, according to Black Knight’s data, the surge in cash-outs helped make Q2 2021 the fifth consecutive quarter with at least 2.2 million refi originations. More cash-outs could be on the way, too: In the second quarter alone, U.S. homeowners with mortgages collectively gained $1 trillion in tappable equity — the amount available to borrow against while still retaining at least 20% equity in a home. For the average mortgage holder, this equates to some $173,000 in equity, up $20,000 in the past three months.
U.S. mortgage holders collectively had $9.1 trillion in tappable equity at the end of June 2021, a whopping year-over-year gain of 37%. That’s the largest annualized jump in tappable equity that Black Knight has ever recorded — by a wide margin.
These huge rises in equity have been a boon not only for homeowners looking to take cash out of their homes but also for those currently on forbearance plans and looking at a return to regular mortgage payments.
“A rising tide lifts all boats as they say, including homeowners in forbearance – whose ability to return to making payments when forbearance ends will likely be a key driver in the nation’s overall COVID-19 economic recovery,” said Ben Graboske, data and analytics president for Black Knight. “Some 98% of homeowners in forbearance now have at least 10% equity in their homes. Even when we add in 18 months of forborne payments – including principal, interest, taxes and insurance – the share with less than 10% equity only climbs to 7%, about 135,000 homeowners.”
Additionally, only 0.6% of homeowners are fully underwater on their mortgages, the lowest share ever recorded by Black Knight.
With these dynamics, the difference between the pandemic and the Great Recession is night and day. Consider that, during the recession, more than 40% of all mortgage holders had less than 10% equity while 28% percent were underwater.
With a significant amount of forborne homeowners holding strong equity positions, it should provide a strong incentive for many to return to making mortgage payments, even if these payments need to be reduced through modification efforts, Graboske said. The increase in equity also should help stem a potential foreclosure wave and limit the inflow of distressed properties into the real estate market.