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Mortgage rate locks tumble amid sharp rate rise

Black Knight and Mortgage Capital Trading both show that mortgage rate lock and cash-out refinance rate lock volume dipped in April

Fewer buyers rushed to lock mortgages last month amid a rapid climb in long-term mortgage rates, reflecting home affordability concerns, reports from Mortgage Capital Trading and Black Knight showed. 

Total mortgage rate locks by dollar volume were down 5% in April from the previous month, according to MCT’s monthly Mortgage Lock Volume Indices report. Compared with the same period last year, the number of rate locks by mortgage volume was down 25.4%. 

The average 30-year conforming mortgage rate climbed to 5.27% last week, marking the highest average since 2009, according to Freddie Mac PMMS. Black Knight’s Optimal Blue OBMMI pricing engine, which considers refinancings and additional data from the Mortgage Bankers Association, finished the month of April at 5.42%.

Refinancing has seen the biggest impact of the rising-rate pressure. Rate locks for rate-and-term refinances, which is driven primarily by a drop in interest rates to lower monthly mortgage payments, were down 36.4% in April from the previous month. Compared with April 2021, rate-and-term refinances were down 89.2%. 

Cash-out refinance activity, in contrast, is led by increasing home values by homeowners seeking to tap into their home equity. In April, cash-out refinance rate locks were down 31.1% from March and slumped 51.7% from a year earlier.

Black Knight’s monthly originations market monitor report showed a similar downward trend of mortgage rate locks. Rate lock production volume activity was down 20.3% month over month, driven by a 50% drop in rate-term-refinance lending activity.

Cash-out refi locks dipped 40% in April as homeowners likely sought other products including Home Equity Line of Credits [HELOCs] or second linens, to access tappable equity without sacrificing historically low first-lien mortgage rates, which were secured with real estate as collateral.

In a traditional home equity product, the lender disburses a lump sum of cash upfront to the buyer, who then pays the loan back in fixed-rate payments. A HELOC, by contrast, is a revolving line of credit that allows borrowing as needed, with a variable interest rate. 

April’s decline in rate lock activity is “hardly surprising,” said Scott Happ, president at Optimal Blue, citing half of all mortgage holders holding current first lien rates below 3.5%. The combined decline in refinance locks pushed the refi share of the market down to 20% last month, marking the lowest point on record since at least January 2018, when Optimal Blue began tracking the metric. 

“That being said, while purchase locks were down somewhat from March, they remained flat from last April, reflecting consistent and resilient demand from homebuyers,” Happ said in a statement. 

Purchase rate locks measured by MCT, however, were up 2.2% month over month in April and 7.55% from a year earlier, “a bright spot even as mortgage rates have increased rapidly in 2022.”

MCT, founded in 2001, launched its first monthly mortgage lock volume report on Monday. The indices are based on the actual dollar volume of locked loans, not the numbers of applications. 

“Especially in a tight purchase market. Applications are a less reliable metric for the mortgage industry as there is a higher likelihood of having multiple applications per funded loan,” the MCT report noted. 

Black Knight’s monthly market monitor reports provide origination metrics for the U.S. and the top 20 metropolitan statistical areas by share of total origination volume. The New York-Newark-Jersey City regions had the highest rate lock volume at 4.1% in April. The Los Angeles-Long Beach-Anaheim regions had the second-highest lock volume rate (3.9%) trailed by the Washington-Arlington-Alexandria (3.8%) region. 

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