Refinance applications dominate the market. Who wouldn’t want to take advantage of the low interest rates? Add in the Home Affordable Refinance Program, and the end result is an explosion in refi activity that has yet to fully die down.
The problem is the purchase mortgage market is coming back — a positive for business, but a potential strain on the capacity of lending shops already burdened with refi activity.
Wade Betz, vice president of sales with Guardian Mortgage, said his purchase activity in 2008 stood at 63.98%, while refinancing came in at 36.02%. By 2009, those numbers had shifted with refis representing 67.40% of his business and purchase mortgages accounting for only 32.60%.
Even though refi applications are starting to dwindle, a sudden return of purchase applications comes with a slight downside.
"The refinance market is still a major focus for lenders. Lenders are finding ways to effectively manage that pipeline and that is not going away any time soon," Ghazale Johnston, a managing director with Accenture Credit Services.
"The trick from our perspective is being able to prepare for the purchase market and capitalize on it, but also recognize that you should not jeopardize the refinance pipeline," Johnston said.
In the most recent report from the Mortgage Bankers Association, the refinance share of mortgage activity remained unchanged at 69% of total applications.
Looking back at the week ending March 29, refinance applications made up 74% of all applications, the MBA said.
Johnston explained that it comes down to three things. First, a firm needs to consider the borrower's experience and ensure the originations process is client focused.
Additionally, businesses need to ensure their systems and processes can handle the new Consumer Financial Protection Bureau regulations.
Finally, companies need to have a trained staff that can handle refinance and purchase applications.
Refinance applications are a little simpler for loan officers to process when compared to purchase applications, which require constant verification and back-end work, Johnston said.
Yes, the market is in transition, but the refinance pipeline is still overflowing with applications. As long as that business is with us, lenders need to be mindful of capacity.