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Rate lock volume has fallen more than 60% over the past 12 months as they struggled under the weight of high mortgage rates which ended at 7.06% in October.
The refinancing market is bottoming out as interest rates rise. According to Black Knight’s market report, the drop in interest rate lockout was driven by a 25.1% drop in payment lockups and an additional 15.7% drop in interest/term repayments since September.
“According to Scott Happ, president of Optimal Blue, a division of Black Knight, “With interest rates at their highest levels in 20 years, the refinance market is rapidly shrinking.”
Usable assets approached all-time highs earlier this year, showing some stability in payments despite interest rates starting to rise.
However, the repayment amount is now down 83.6% from October 2021, and interest payments/terms are down 92.6% year-on-year.
Total rate lock volume was also down 14% from September, with commitment activity down 30% over the past three months. According to the report, volume at this time is down 61% from last year.
The number of borrowers with refinances also hit an all-time low of nearly 130,000, “most taking out 30-year mortgages for at least 14 years with little incentive to restart the clock.” Happ said.
Mortgage purchases still make up the largest share of rate fixing, at 86% since Optimal Blue began tracking the data in 2018. However, purchase loans are under downward pressure due to affordability issues.
In terms of dollar transaction volume, slot buying is down 13% from September 2021 and 39% from October. “
It’s not surprising to see a resurgence in “relatively low rate loan products such as adjustable rate mortgages (ARMs),” which accounted for 13.1% of October’s closing activity. According to Happ, that’s an 11.3 percent increase from September.
With new underwriting guidelines, ARMs are making a comeback as homebuyers look for lower monthly payments.
ARMs all but disappeared after the 2008 housing crisis due to predatory lending practices, and many subprime lenders offered interest-only ARMs to borrowers, including those who didn’t qualify for a conventional mortgage.
“Lower prices, interest rates, and home values all play a role in lowering purchase prices and loan sizes, all harming top of the normal seasonal decline,” Happ said.
After a brief spike in September, the median purchase price and median loan amount fell to $423,000 and $337,000, respectively, in October.
Credit scores also dropped, with the average score for a given borrower dropping another 3 points.
The average credit score for cash-out refinancing is now 690.37 basis points lower than in the same period last year. The purchase mortgage score fell 1 bps to 729 in October and the interest/term refinance fell 2 bps to 736.
Reference Source: Housing Wire
