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Refinance well drying up? Rising interest rates shrink pool of eligible borrowers, again

New Black Knight report shows impact of another week of higher rates

Recent reports from various analysts, including this one from Kroll Bond Rating Agency, suggest that 2017 will see smaller mortgage origination volume than 2016, thanks to the impact of rising interest rates on borrowers seeking to refinance their mortgage.

A report from Black Knight Financial Services last week showed that the pool of borrowers who had incentive to refinance shrank over the last several weeks as interest rates rose above 4%.

Now, thanks to another increase in interest rates last week, the pool of borrowers with incentive to refinance is now even smaller.

As Freddie Mac noted in its most recent report, the average interest rate for a 30-year, fixed-rate mortgage increased to 4.13% for the week ending Dec. 8, 2016. That’s up from 4.08% during the previous week.

Black Knight’s report last week showed that the number of potential refinance candidates dropped by more than 50% recent, as roughly 4.3 million borrowers were removed from the pool of potential refinance candidates.

That left just approximately 4 million borrowers who both benefit from and likely qualify for a refinance.

Now, according to Black Knight’s newest report, another 700,000 borrowers lost the incentive to refinance with the latest interest rate increase.

Per Black Knight’s data, there are now 3.3 million borrowers in the eligible to refinance pool, which means that 5 million borrowers lost the incentive to refinance since the beginning of November when interest rates began to increase.

According to Black Knight’s report, the refinance population has only been this low on two occasions in recent history: December 2013 and January 2014.

Interest rates at that time were above 4.4%.

Consequently, refinance mortgage origination volume in the first quarter of 2014 was the lowest in any quarter in the last 10 years, and 60% below the refinance mortgage origination volume in the third quarter of 2016, Black Knight’s report showed.

But all is not lost for the mortgage market. Far from it, in fact.

KBRA notes in its report that mortgage interest rates have stayed well below historical norms for some time, meaning that rising interest rates likely won’t effect purchase mortgages in 2017.

Case in point, KBRA notes in its report that purchase mortgage originations are projected to rise in 2017.

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