Housing MarketMortgageReal Estate

About 7M refi candidates missed the “forever rate” boat

Even with today's higher rates, over 1.2M people could save up to $745 a month

A 40-plus basis point rise in mortgage rates over the past month resulted in approximately 7 million high-quality refi candidates who are no longer able to lock “forever rates,” according to a recent report from Black Knight.

On Feb.11, the mortgage data and analytics provider estimated there were 18.1 million borrowers who met broad-based underwriting criteria and could save at least 0.75% on their mortgage rate through a refi. That was back when rates were as low as 2.73%, which some coined “forever rates” because it is unlikely they’ll be as low again for decades.

But on the news that mortgage rates jumped to 3.17% last week, Black Knight reported that there are now just 11.1 million “high quality” refi candidates. That is the smallest number of potential refi candidates in a year.

For Black Knight, these candidates are defined as a 30-year mortgage holder with a maximum 80% loan-to-value ratio and credit scores of 720 or higher.

Lenders need the stars to align on some of the dwindling number of candidates. But if they do, the average homeowner could potentially save almost $300 a month through a refinance. Roughly 2 million of these candidates could save over $400 a month, while another 1.2 million could save upwards of $745 each month, Black Knight said.

Should lenders look to non-QM when the refi boom slows?

HousingWire recently sat down with Tom Hutchens, Angel Oak EVP of production, who shared how non-QM lending could be an effective way for lenders to replace lost business in the event of a refi boom slowdown.

Presented by: Angel Oak

In California alone, there are 1.43 million refi candidates who could save a cumulative $534 million in payments and interest. In the New York metropolitan area alone, there are 713,000 refinance candidates. With an average savings of $412 per borrower, they’d cumulatively save nearly $294 million.

Disregarding Black Knight’s eligibility criteria, there are almost 19 million 30-year mortgage-holders who are “in the money,” with current interest rates at least 0.75% above today’s rate.

If every single “high-quality” refinance candidate did repackage their loan, Black Knight estimates that a $36 billion stimulus would flow back into the economy from the potential savings. Of course, few, if any, economists think that 11 million borrowers are actually considering snagging that opportunity.

Fannie Mae’s economic research group has forecasted that in 2021, the refinance share of origination activity is forecasted to dip to 54%, down from 64% in 2020. By 2022, the refinance share is expected to hit 39% due to the continued rise of mortgage rates, further depleting the pool of refi candidates.

Even years that don’t swell like 2020 bring in millions of potential refi borrowers, but the demand witnessed last year requires historically low rates. And the industry isn’t expecting them to drop back down anytime soon.

A silver lining from Black Knight’s January mortgage monitor report found that rate lock volumes had remained relatively strong through mid-February. Though refi locks edged back slightly from early January, they were more than double the volume seen during the same two-week span last year. Black Knight suggested that increases in 30-year rates may have spurred formerly procrastinating borrowers to act while rates were still near historic lows.

Assuming a 45-day lock-to-close timeline, Black Knight’s rate lock data from mid-February suggests refi activity could remain relatively steady this quarter before recent rate spikes begin harshly impacting closed loan volumes.

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