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Is Q1 the last quarter to ride the mortgage refinance wave?

Black Knight estimates estimates 12.9 million high quality refi candidates remain – the lowest such volume since May 2020 and down 30% in just three weeks.

Lenders may have one last quarter to ride the market’s massive mortgage refinance wave after Monday data from Black Knight’s Mortgage Monitor Report revealed that despite rising interest rates, Q1 2021 refinance lending volumes are poised to remain near last quarter’s meteoric high.

“Roughly 2.8 million homeowners refinanced their mortgages in the last quarter of 2020, which saw a record-breaking $869 billion in refinance lending,” said Ben Graboske, Black Knight’s president of data and analytics.

A whopping $4.3 trillion in mortgages were originated in 2020, with $2.8 trillion in refinances, and Black Knight is confident lenders should still be able to cash in on that steady refi volume given that daily rate locks through mid-February were elevated.

That rise in refi locks suggests that increases in 30-year rates over the first 45 days of the year may have spurred formerly procrastinating borrowers to act while rates were still near historic lows.

But companies need to act fast, as Graboske noted that activity is already beginning to curtail. As of Feb. 11, there were still some 18.1 million high-quality mortgage refinance candidates, but with news of interest rates breaking 3% starting March 4, Black Knight estimates 12.9 million remain – the lowest such volume since May 2020 and down 30% in just three weeks.

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

Plus, retention is at historic record lows – just 18% of mortgage holders are retained by their servicers.

“Approximately 2.3 million borrowers were not retained in Q4 2020 alone,” Graboske said. “The current rate volatility serves to underscore the critical nature of both accurate and strategic pricing and advanced retention analytics to help identify borrowers who still have incentive and are out there transacting in the market.”

According to Black Knight, among higher-credit quality rate/term GSE mortgage refinances, borrowers who shopped the market received more than an eighth of a percent lower rate than those who refinanced with their current servicer.

Despite 3% still being a great rate for millions of borrowers, a one-eighth to a quarter turn in mortgage rates (high or low) can move the market substantially, said Logan Mohtashami, HousingWire‘s lead analyst.

“There are people who had a 4.00% rate that refinanced to 3.25% and then said, ‘Oh well now that rates are low, I’ll refinance again to 2.75%.’ But if that rate sneaks up a quarter it’s no longer ideal and its lost its appeal. They are going to wait for it to come back down, right? And then it doesn’t,” Mohtashami told HousingWire in late February.

If the mortgage refinance wave does indeed begin to level off in Q2 though, data suggests the purchase market is ready to resurge given rising economic resilience in employment and vaccine distribution. With those factors climbing, the Mortgage Bankers Association is forecasting that the Freddie Mac survey rate will reach about 3.5% by the end of 2021. And with it, a wave of young homebuyers that will support the purchase market for at least the next few years.

According to Mike Fratantoni, MBA’s chief economist, the trade organization is predicting that the mortgage industry will originate just shy of $3 trillion in total volume or 2021, with the majority – $1.57 trillion – in home purchases.

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