With each passing day, more evidence is emerging that 2019 is a good year for the mortgage business due low interest rates leading to a wave of refinances.
Earlier this week, Wells Fargo, JPMorgan Chase, and Citigroup all reported that their mortgage originations were up in the third quarter, with refinances playing a large role in the increases.
Now, a new report from Ellie Mae provides more proof that refinances are still going strong.
Ellie Mae’s latest Origination Insight report shows that in September, refinances made up a larger share of the overall total of mortgage originations than in any month in more than four years.
The reason for the increase? Low interest rates.
According to Ellie Mae’s report, the 30-year interest rate dropped for the ninth consecutive month in September, falling to 3.93%, down from 4.07% in August.
And as interest rates fall, the percentage of homeowners who are refinancing is increasing.
According to the report, refinances made up 49% of all loans in September, up from 43% in August. Conversely, purchase mortgages as a share of all loans dropped to 51% of all loans.
The percentage of refinances hasn’t been this high since March 2015.
“The continued decline in interest rates is driving the refinance revitalization that is now accounting for almost 50 percent of all closed loans in the month,” said Jonathan Corr, president and CEO of Ellie Mae. “The market is still anticipating further rate cuts by Treasury, so lenders should capitalize on leveraging technology to ensure they are responding to the growing number of refinance opportunities that come their way.”
Beyond the increase in refinances, Ellie Mae’s report also showed that mortgages are closing at a higher percentage than they have in at least a year.
To get a meaningful view of lender pull-through, Ellie Mae said it reviewed a sampling of loan applications initiated 90 days prior – or the June 2019 applications – to calculate an overall closing rate of 78.1% in September 2019.
According to Ellie Mae, closing rates on purchases increased in September just slightly, to 80.7% from 80% during August, while closing rates for refinances rose to 74.8% in September, up from 72.5% in August.
Yet again, the percentage of refinances increased across the board last month, with FHA refinances seeing a small uptick to 28% in September from 27% in August. In August, FHA refinances increased from 24% to 27%.
Conventional refinances rose from 46% in August to 55% in September, and VA refinances ticked up from 34% in August to 37% in September.
Overall FICO scores increased to 737, up from 734 the month prior.
NOTE: Ellie Mae’s Origination Insight Report focuses on loans that closed in a specific month, comparing their characteristics to similar loans that closed three and six months earlier. The closing rate is calculated on a 90-day cycle instead of a monthly basis.