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Refi market rebounds thanks to declining interest rates — but for how long?

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About 7.1 million homeowners could have benefitted from refinancing their mortgages in February, according to mortgage technology and data analytics provider Black Knight Financial Services LLC’s latest Mortgage Monitor Report.

That’s almost double the number of potential refinance candidates the company’s data and analytics division estimated at the same time last year, when approximately 4.1 million borrowers qualified for refinancing.

The Mortgage Monitor report examined the population of borrowers whose current interest rates, credit scores and loan-to-value ratios mark them as good candidates for refinancing.

Black Knight attributed the rise to a combination of declining interest rates and increased equity driven by home price increases. However, the number of refi candidates could decline if interest rates climb, even marginally, said Trey Barnes, Black Knight’s senior vice president of Loan Data Products.

Barnes pointed out that the report’s population is rate-sensitive and said the decline of 60 basis points in the prevailing 30-year interest rate fueled in the year-over-year increase in potential refi candidates.

“If interest rates were to rise by just half a percentage point, 3 million borrowers would fall right back out of the running as far as benefiting from refinancing their mortgages,” Barnes said.

The report also found that prepayment speed, which historically has been a good indicator of refi activity, of borrowers with credit scores below 620 was the lowest Black Knight has seen since it began tracking this data in 2000. As a result, the average loan age for this group was 98 months, compared to just 38 months and less for borrowers with credit scores of 750 and above.

Using data from Black Knight’s Home Price Index, the Mortgage Monitor report also examined real estate transactions in 2014 and concluded that although traditional market sales outpaced 2013 levels, overall real estate sales were down for the year due to a decrease in distressed transactions such as REO (real estate owned) or short sales. Nationally, just 12.7 percent of 2014 residential real estate transactions were distressed sales, the lowest such share since 2007; that was down from 17 percent the year before and a high of 33 percent in 2011.

Florida led the country in 2014 with 25 percent of all transactions in the state coming from distressed sales, and accounted for 26 percent of all distressed sales in the United States. Florida has also seen the lowest level of home price appreciation since the bottom of the market out of all the major “bubble” states, Arizona, California, Florida and Nevada. However, Florida’s REO sales discount of 24 percent, while deeper than the other bubble states’ discounts, is still lower than the national average of nearly 27 percent, Black Knight concluded.

Email Amy Swinderman.