The 30-year fixed-rate mortgage fell to 6.17% the last week of October, and as a result, the number of highly qualified refinance candidates, homeowners with at least a 720 credit score, 20% equity and potential savings of at least 75 basis points, rose to 1.7 million, the most in three and a half years, according to ICE Mortgage Technology's latest monthly analysis.

"The recent easing in mortgage rates has begun to open the refinance window for many borrowers, particularly those who originated loans in the past two years," said Andy Walden, head of mortgage and housing market research at ICE, in a press release Monday.

"At the same time, homeowners still have near-record amounts of tappable equity, and the cost to access that equity continues to improve. Together, these trends are creating meaningful opportunities for borrowers to leverage rate-and-term refinances and second-lien home equity products."

Additionally, 4.1 million borrowers were "in the money" for a refinance, meaning they could save at 75 basis points by doing so. Mortgage rates ticked back up to 6.22% last week after falling for all of October, but if rates eventually lower to 6.125%, the "in the money" pool could grow to nearly 5 million, the report said.

In last month's report, around 3.1 million borrowers were "in the money" with a 6.38% 30-year rate. 

This month's report also found that home equity has become more accessible, supporting home equity lending. Borrowers entered the fourth quarter of this year with $17.3 trillion in home equity, of which $11.2 trillion can be accessed with a home equity loan while still maintaining a 20% equity stake in the property. 

While equity growth has slowed in recent months, the monthly cost to withdraw $50,000 in equity has dropped by more than $100 as the home equity line of credit interest rate fell to near 7% in the third quarter.

This swing toward HELOC comes as banks are losing their share in the product to fintechs and other nonbanks, now holding just under two-thirds of HELOC debt.

With flattening equity growth comes affordability for homebuyers. ICE's Home Price Index showed annual growth increased 0.9% in October, as affordability hit its best level in two and a half years, the report said. Single-family homes went up 1.2% last month, while condos dipped by 1.8%.

The third quarter showed similar price gains, with single-family home prices growing 1.7% on an annual basis. The Northeast and Midwest saw the largest increases, while the South and West better adjusted to a buyer's market.

"As refinancing and equity-tapping become more favorable, lenders and servicers have an opportunity to proactively support borrowers," said Tim Bowler, president of ICE, in the release.

Mortgage performance produces mixed results

The number of borrowers a single payment past due decreased by 11,000, dropping the delinquency rate by two basis points. Loans 90 or more days past due but not in foreclosure decreased 1% from August as well.

Prepayment activity also improved to 0.74% as rates decreased, up almost 15% from a year ago.

But foreclosures starts spiked 23% year over year in the third quarter, while loans in active foreclosure increased 18%. Still, both numbers remain comfortably below 2019 levels.