Refinances make a comeback in July

Rates below 3%, Delta concerns and no more adverse market fee pushed borrowers over the line

Refinances are flowing once again, according to July mortgage origination figures in a report from Black Knight, and early data from August suggests more are on the way.

For the first time since February, refinance activity accounted for half of all origination activity, according to a report by Black Knight. Rate and term refinances rose 24%, while cash-out refinances were up 20% from the previous month. Overall, mortgage rate locks were up 5.5% month-over-month.

A number of recent changes working together drove the increase in refinance activity.

In mid-July, the Federal Housing Finance Agency rolled back the adverse market fee, which had added 50 basis points to most refinanced mortgages. Removing it was one of the first policy moves of the agency’s new acting director, Sandra Thompson. Industry stakeholders had argued that the fee was meant to build up the government sponsored entities’ capital levels, while the GSEs performed well during the pandemic. Fannie Mae posted $7.2 billion in net income in the second quarter of 2021.

Rates have also fallen firmly below 3%, driven by continuing declines in 10-year Treasury yields, although they have spent little time this year above 3%. Borrowers reacted strongly to the decline to refinance, said Black Knight’s secondary marketing technologies president, Scott Happ. 

How mid-year market shifts are impacting originators

The greater need for cash-out refinances drives originators to prepare with diverse product offerings. Additionally, originators will now need to have a way to qualify self-employed borrowers who may need to rely on bank statements to qualify for a mortgage. 

Presented by: FGMC

“The mid-month surge was pronounced, but short-lived, suggesting that crossing the 3% threshold was what borrowers were waiting for before acting, and when rates ticked back above that psychological line, they held back on the sidelines once again,” said Happ. “Now that rates are again below 3%, a very early look at August lock data suggests more of the same in the month’s earliest days.”

Mortgage rates dropped to 2.77% this week on fears surrounding the surging Delta variant. And although it may be harder to quantify, those concerns may also contribute to refinances, for homeowners wishing to reduce payments in order to buffer against economic uncertainty.

Credit scores for refinances also rose for the first time this year, demonstrating that higher-credit borrowers are moving quickly to take advantage of favorable market conditions.

Meanwhile, locks on purchase loans fell 7% from June. The purchase market is still contending with rising home prices and severely limited inventory.

In May, home prices increased across the board, leaping 16.6% annually in the latest S&P CoreLogic Case-Shiller National Home Price Index report, marking a full year of accelerating prices.

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