Cash-out refinance activity could spike in 2021: Transunion

With multiple vaccines on the way, many expect that the pandemic's grip on the world will loosen in the coming months. As the economy rebounds, lenders will expand credit availability in correlation with lessening risk, TransUnion reports in its 2021 Consumer Credit Forecast. But some strapped borrowers — put under additional strain once the CARES Act-related mortgage forbearance protection ends — may turn to products like cash-out refinances for liquidity.

In the spring, the two six-month stints of forbearance that the act granted will end for many homeowners. About 2.8 million borrowers sit in forbearance as of the last full week of November, according to Mortgage Bankers Association numbers.

As it currently stands — future protection extensions and other programs emerging notwithstanding — those in forbearance will either start making payments again or head into delinquency.

"There's going to be a reflection period around the April, May and June timeframe. That's the cliff we all have to look for to see how our consumers are getting transitioned off of their forbearance programs," Joe Mellman, senior vice president and mortgage business leader at TransUnion, said in an interview. "The GSEs and FHA will have programs in place to help them do that. Then we'll probably see a sharp decrease and then a steady decrease from there through the end of the year."

Mortgage holders tend to have more non-mortgage loans than renters, so liquidity for borrowers restarting their mortgage payments is a big question for 2021, Mellman said. Because of this, cash-out refinances could see a spike in activity.

"We saw cash-out refinance shares at astronomical highs in 2019. A lot of that decreased because it's inherently a riskier product and lenders shied away from that in COVID times," Mellman said. "We think as we get a handle on COVID nationally and economic recovery starts to take place in the second half of next year, we're going to start to see a return of cash out refi programs being available to consumers and consumers taking advantage of them."

2021 should still be a strong year for originations, with volume likely to fall closer to 2019 levels than 2020, TransUnion found. With interest rates expected to stay low, the company projects over 2 million mortgage originations in each of the first two quarters of 2021. They'd represent year-over-year changes of 13.9% and -32.3%, respectively, from the opening frames of 2020. While originations getting cut by a third stands out as a stark decline, it'd be a mere come-down from a boom period of historic highs.