Black Knight: Mortgage originations surge to highest level in three years

Purchase demand booms as refinance demand disappoints

The purchase market is booming, fueling the overall mortgage market and helping set the highest first-lien mortgage originations volume in a single quarter since the second quarter of 2013, the latest Black Knight Financial Services Mortgage Monitor Report found, based on data as of the end of July 2016.

In the second quarter of 2016, purchase loan originations increased 52% ($102 billion) from the first quarter, reaching the highest level in terms of both volume and dollar amount since 2007.

This in turn helped bring in first-lien mortgage originations in the second quarter to $518 billion.

Black Knight Data and Analytics Executive Vice President Ben Graboske explained that a combination of continued purchase origination growth and refinance activity spurred by low interest rates drove the growth in first-lien mortgage originations in the quarter.

“Interestingly, however, with interest rates 15 basis points lower than in Q1, and even lower than in early 2015, refinance activity wasn’t nearly as strong as one might have expected,” he said. “While purchase originations jumped more than 50% from Q1, refinances saw only an 8% increase over that period, and were actually down from the same time last year, despite the number of potential refinance candidates outpacing 2015 by over 1 million in every month since March.”

However, Graboske added that refinance lending has risen for three consecutive quarters and accounted for $221 billion in originations in Q2.

According to the most recent Freddie Mac mortgage rate report, the 30-year fixed-rate mortgage sits at 3.46%.

Falling in line with recent industry reports, the Black Knight report also hit on today’s tight credit environment.

According to the report, two-thirds of Q2 purchase lending went to 740+ credit score borrowers, which is on par with last year, and the largest growth (13% year-over-year) was seen in moderate credit borrowers (700-739).

“Although the purchase lending credit box remains tight, there is increasing participation among ‘moderate’ credit borrowers as well,” said Graboske. “This segment has seen the highest rate of growth over the last three quarters, and now makes up 19% of all purchase originations.”

“On the other end of the spectrum, sub-700 score borrowers now account for only 15% of originations, with less than 5% going to borrowers with scores of 660 or below,” he said. “Both of these mark the lowest share of low credit purchase lending seen dating back to at least 2000.”

Laurie Goodman recently penned a blog for the Urban Institute on this credit topic, bringing the severity of the situation into the spotlight. In it, she urged “a near-zero-default environment is clear evidence that we need to open up the credit box and lend to borrowers with less-than-perfect credit.”

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