Falling Mortgage Rates Greatly Increases Refinance Candidate Pool
Written By: Joel Palmer, Op-Ed Writer
New data released last week reinforced the strength and potential of the mortgage refinance market.
According to Black Knight’s latest Mortgage Monitor report, there were more than 11 million candidates for refinancing as of February 20.
Black Knight defines refinance candidates as 30-year mortgage holders who are current on their loans, have credit scores of 720 or higher, hold at least 20 percent equity in their homes, and who could cut their current interest rate by at least 0.75 percent.
Without the equity and credit score requirement, Black Knight says 21.8 million homeowners currently have a mortgage rate 0.75 percent above today’s average rates.
That number will swell, as average mortgage rates have dropped considerably in the last few weeks.
According to the latest Freddie Mac Primary Mortgage Market Survey, the average 30-year rate fell to an all-time low of 3.29 percent during the week of March 5. According to Black Knight, if the 30-year rate dropped to 3.25 percent, there would be 14.5 million refinance candidates.
The previously unexpected decline in mortgage rates could reverse prior projections of a fall-off in the refinance marketing this year.
In fact, Fannie Mae’s last Economic and Housing Outlook had a revised estimate for refinancing this year. Its 2020 forecast for refinance originations increased from $690 billion to $895 billion.
Black Knight noted, however, that servicers are facing challenges in retaining the business of refinancing borrowers. Servicers only retained 20 percent of refinance borrowers in the fourth quarter of 2019.
“Retention rates rose along with refinance volumes early last year, but retention rates have since fallen in each of the past two quarters,” said As Black Knight Data & Analytics President Ben Graboske.
Black Knight said that only 25 percent of borrowers refinancing to lower their rate or term stayed with their servicer post-refinance. This is typically easy business to retain. A large driver of this trend is the failure to retain 2018 mortgages.
There are greater challenges with retention in the cash-out refinance market. Retention rates for these refinances fell from 19 percent in the third quarter of 2019 to 17 percent in the fourth quarter.
At the same time, cash-out lending hit a more than 10-year at the end of 2019. Roughly 600,000 borrowers pulled an estimated $41 billion in equity from their homes, the largest quarterly volume since 2007.
Other refinance data in the Black Knight report includes:
After hitting an 18-year low in the fourth quarter of 2018, refinance lending rose 250 percent year-over-year to hit a 6.5-year high in the same quarter of 2019
With 44.7 million homeowners holding a total of $6.2 trillion in tappable equity and approximately 600,000 withdrawing equity via cash-outs in the fourth quarter of 2019, improving retention among this segment is crucial.
The current $6.2 trillion tappable equity market is the highest year-end total on record.
The average homeowner holds $119,000 in tappable equity, up $8,400 from the same time last year.
Approximately 75 percent of homeowners with tappable equity have current interest rates at or above the prevailing 30-year rate.
In the fourth quarter, about 76 percent of homeowners were either able to keep their interest rate the same or significantly decrease their interest rate through cash-out refinance, the largest such share in three years.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
