Home equity and tappable equity declined in the third quarter because the value of home prices declined in some of the most expensive housing markets in the U.S. Tappable equity is the amount available for homeowners to borrow against before hitting a maximum 80 percent combined loan-to-value ratio.

“After seeing a significant slowdown in its growth from the first to second quarters of 2018, the amount of tappable equity fell by $140 billion in Q3 2018,” said Ben Graboske, executive vice president of Black Knight’s the data and analytics division of Black Knight. “That is the first decline we’ve seen since the housing recovery began, and its cause can be traced directly to softening home prices in some of the nation’s most expensive – and equity- rich – markets. Indeed, tappable equity fell in 60 of the 100 largest markets, including 12 of the top 15.”

Three markets in California alone, San Jose, San Francisco and Los Angeles, accounted for 55 percent of the total net decline, according to the Mortgage Monitor Report from Black Knight.  If Seattle is included, then four markets represented two-thirds of the net reduction in tappable equity. All were areas where home price growth has far outpaced the national average in recent years, but in which prices fell in Q3 2018 – from as little as one percent in Los Angeles, to 4.6 percent in San Jose.

“Of course, there is still $9.8 trillion in total home equity in the market, some $5.9 trillion of which is tappable. That’s $571 billion more than in Q3 2017, and tappable equity remains near an all-time high. It’s also important to remember that third quarters are relatively flat as far as home prices are concerned, and that tappable equity is up on an annual basis in 98 percent of major metro areas,” said Graboske.

An analysis of listings on mortgaged properties suggests that homeowners are reluctant to put their current homes on the market due to ‘rate lock’ or ‘affordability lock’ may still be holding down available inventory by about six percent. Constraining the supply of available homes, however, might be countering what might otherwise be greater downward pressure on home prices.

Other results from the quarterly equity data showed that just 1.8 percent of homeowners remain underwater, owing more on their mortgages than their homes are worth. For those with equity, the average homeowner with a mortgage has $191,000 in equity in his or her home. Among those with tappable equity, the average amount available to borrow against is $136,000. Over 50 million homeowners with mortgages have some amount of equity in their home, 43.6 million of which have tappable equity, a decline of around 272,000 from this time last year.

The Fannie Mae Home Purchase Sentiment Index rose 0.5 points to 86.2 in November.

The increase can be attributed to an increase in the net share of Americans who reported a significant increase in income, which hit a new survey high after jumping five percentage points. The net share of Americans who said it is a good time to buy a home rose two percentage points, while the net share who said it is a good time to sell a home remained unchanged. The Home Purchase Sentiment Index distills information about consumers' home purchase sentiment from Fannie Mae's National Housing Survey into a single number.

Meanwhile, the net share of survey respondents who expect home prices to go up fell four percentage points, and the net share who expressed greater job confidence fell one percentage point. Finally, the net share who expect mortgage rates to go down increased one percentage point.

"The HPSI has moved within a tight range over the past five months, as positive sentiment regarding the overall economy continued to offset cooling housing sentiment," said Doug Duncan, senior vice president and chief economist at Fannie Mae. "Consumers' perceptions of growth in their household income reached a survey high this month, helping to absorb some of the impact of increasing mortgage rates on housing market activity. Meanwhile, the net share of consumers expecting home prices to increase over the next 12 months continues to moderate, dropping by 13 percentage points since this time last year."

Highlights from the Home Purchase Sentiment Index are as follows:

• The net share of Americans who say it is a good time to buy a home rose two percentage points from last month to 23%.
• The net share of those who say it is a good time to sell a home remained unchanged at 35%.
• The net share of those who say home prices will go up fell 4 percentage points to 33%, declining for the second consecutive month.
• The net share of Americans who say mortgage rates will go down over the next 12 months rose 1 percentage point to -56%.
• The net share of Americans who say they are not concerned about losing their job fell one percentage point to 77%.
• The net share of those who say their household income is significantly higher than it was 12 months ago rose 5 percentage points to a survey high of 24%.

Two law firms have filed a class action lawsuit on behalf of borrowers who were wrongfully denied a mortgage modification under the federal Home Affordable Modification Program due to an alleged software error by Wells Fargo. The Gibbs Law Group and Paul LLP allege in the lawsuit that Wells Fargo failed to implement and maintain its internal software and protocols to correctly determine whether a mortgage modification was required under HAMP regulations.

The lawsuit, Case 3:18-cv-07354, was filed in United States District Court for the Northern District of California on Dec. 5, 2018, contends the amount involved exceeds $5 million. It alleges that Wells Fargo knew of the error in 2015 but failed to disclose it for nearly three years. As a result, “approximately 625 customers,” were “incorrectly denied a loan modification.”

In November 2018, Wells Fargo announced that it had understated the number of affected borrowers and that it was actually 40% more; now Wells Fargo claims a total of 874 were incorrectly denied loan modifications by the software error, though they were entitled to one under the federal Home Affordable Modification Program, according to the court filing.

At least 545 mortgage borrowers lost their homes through foreclosures because of Wells Fargo’s software error. The lawsuit seeks remedies for the harm Wells Fargo caused borrowers who were erroneously denied a mortgage modification. Due to deteriorating financial markets in the fall of 2008, the Home Affordable Mortgage Program was created to “minimize foreclosures” and funded with $50 billion.

Wells Fargo chose to participate in the HAMP program and received $6.4 billion in HAMP funds. In exchange for which, it agreed to abide by all “guidelines and procedures issued by the Treasury with respect to [HAMP]” and “any supplemental documentation … issued by the Treasury,” including “Supplemental Directives,” according to the court filing.