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» VISIT US ONLINE @ DSNEWS.COM 23 percent due to the falloff in refinance, but mortgage debt outstanding continuing to slowly grow as home purchase volume rises. HELOC lending should rise too, as home-price growth has rebuilt home equity; homeowners who need to finance home improvements will be reluctant to refinance their low-rate first-lien mortgage, and will turn to second-lien credit. What states (if any) are still struggling with foreclosures? New York and New Jersey have the highest percentage of loans in foreclosure proceedings. In part, this reflects the very long timeline to complete foreclosures in judicial proceedings states. Nonetheless, the good news is that the foreclosure rate has continued to decline in these states, as it has in the overall statistics for the U.S. But the foreclosure rate is just one of several metrics to look at. I think it's important to look at the serious delinquency rate as well—the percent of loans 90-days-or-more delinquent or in foreclosure proceedings—and the percent past due. Looking at these two additional barometers, then it's clear there are also loan performance issues in Louisiana and Mississippi: Serious delinquency rates in these two states are nearly as high as in New York and New Jersey, and the latest data on past due rates, as shown in CoreLogic's Loan Performance Insights Report, places Louisiana and Mississippi above the two mid-Atlantic states. One cautionary flag that is true wherever home sales have been rising and a local market has been 'hot'– it's important for lenders to be vigilant against fraud. Fraud risk is more of a concern in home-purchase lending than for refinance. What impact will rising rates have on the mortgage market? Home mortgage rates for 30-year fixed-rate loans are up more than one-half percentage point from the lows of last summer, and the consensus view among housing economists is for further upward pressure on rates during the second half of 2017. And the Federal Reserve has made it clear that if the economy continues to improve as it expects, then the Fed will push short-term interest rates higher as well, which will raise the cost of ARMs and HELOCs. Higher mortgage rates have important effects on both the housing and the mortgage markets. As mortgages become more expensive and home prices continue to rise, homebuyer affordability deteriorates. Affordability had already been a stretch in high-cost markets last year, and higher rates worsen and broaden the sting. is will lower the increase in home sales that otherwise would have occurred this year. A second effect will be on the mobility of current homeowners. Many owners today have a first-lien mortgage with an incredibly low interest rate: Many are below 3.5 percent, and some are below 3.0 percent fixed-rate! With 30-year mortgage rates today at or above 4 percent, and perhaps reaching 4.5 percent in the next 6 to 12 months, many of these owners will decide to stay in their homes longer rather than sell and buy a new home that they will need to finance with a more expensive mortgage. us, with a lower owner re-sell rate, I expect the for-sale inventory to continue to remain lean this year and next. In the mortgage market, we have already begun to see the drop in refinance volume compared with last year. In past up-rate cycles, when rates rise and come off their lows, we have seen a significant drop in the refinance share, as well as a change in the type of refi loans. is year's rise in rates will have a similar effect. We anticipate close to a 50 percent drop in refinance in 2017 compared with last year. And the loans that refinance will have a much higher FHA- to-conventional share of new refis, and borrowers who refinance this year will either keep or lengthen the term of their first lien, because lengthening the loan term mitigates the effect on the monthly payment of a higher mortgage rate. With less applicants and lower origination volumes in the market, I expect that we will see lenders put more effort into finding innovative ways to approve loans to responsible applicants, so we may see some opening of the credit box at the margin. As for loans currently outstanding, higher short-term rates heighten concern that ARM and HELOC borrowers may face some 'payment shock ' from higher short-term indexes. For fixed-rate loans, however, credit risk will be marginally less, because market-to-market loan-to-value ratios will be lower with the rise in market rates. us, the net effect on credit risk for loans outstanding may be close to a wash, with somewhat higher risk for ARM and HELOC loans outstanding, but less risk for low-rate fixed-rate loans. "In the mortgage market, we have already begun to see the drop in refinance volume compared with last year. In past up-rate cycles, when rates rise and come off their lows, we have seen a significant drop in the refinance share, as well as a change in the type of refi loans."

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