Intercontinental Exchange (ICE), Inc released its December 2023 ICE Mortgage Monitor Report, based on the company’s mortgage, real estate and public records data sets. Rising home prices, though cooling in recent months, have returned total tappable equity to near its 2022 peak, according to an ICE release.

This has implications for both equity lending as well as performance-related risk among active mortgages.

“Despite the resurgence in tappable equity among U.S. mortgage holders, elevated interest rates are making homeowners reluctant to extract that wealth,” ICE Vice President of Enterprise Research Andy Walden said in the release. “Indeed, in recent quarters, equity withdrawal rates have been running at less than half their long-run averages. Mortgage holders extracted a mere 0.41 percent of tappable equity available at the beginning of Q3.

“That’s some 55 percent below the average withdrawal rate seen in the 12 years leading up to the Fed’s most recent tightening cycle,” Walden added. “That’s equivalent to $54 billion – $250 billion over the last 18 months, in ‘missing’ withdrawals that might have otherwise stimulated the broader economy.”

Along with other factors, rising equity levels are contributing to low default and foreclosure activity in today’s market, he said. Walden further suggested that any specter of a potential wave of foreclosures must be tempered by a recognition of borrowers’ generally strong equity positions, including the most seriously delinquent among them.

“Though they hit an 18-month high in October, foreclosure starts remain 35 percent below pre-pandemic norms,” Walden said. “Lenders and servicers have many more options for working with borrowers to avoid foreclosure today than at almost any point in the past. Just to illustrate the scope: 70 percent of loans currently three or more payments past due are protected from foreclosure by ongoing loss mitigation efforts. Further, 58 percent of these seriously delinquent mortgage holders hold more than 20 percent equity stakes in their homes.

“Strong equity cushions not only provide borrowers incentive to work with their servicers to return to making mortgage payments, they also open up other options, such as salvaging earned equity with a traditional home sale rather than going through foreclosure,” he added. “The more the industry can do to educate, and update, borrowers as to their equity positions, the better. Loss mitigation can be much more successful when a borrower can make educated and informed decisions, fully aware of the options available to them.”

The month’s data also showed that while overall refinance activity remains a shadow of what it was just a couple of years ago, what’s left is almost entirely equity centric. Cash-outs accounted for 92 percent of all refis in the third quarter, with borrowers withdrawing a record $104,000 on average, up from just $65,000 two years ago.

Purchase loans continue to dominate, driving 86 percent of third quarter activity, and are expected to account for roughly 75 percent of all mortgage lending in 2024. Interest rate pressures continued to mount, however, with purchase loan debt-to-income ratios hitting multiyear highs in October.

ICE Market Trends data, which tracks originations across the ICE Mortgage Technology platform, shows an overall tightening of lending criteria, with credit scores among conventional, FHA and VA purchase loans all hitting series highs in October. The average FHA score has risen 14 points over the past 12 months, with VA scores up 13 points during that same period.