Non-conforming loans pushed rate lock dollar volumes up in February as homebuyers struggle to handle high rates.
While conforming, FHA, and VA loans all lost some share of the market last month, non-conforming loans increased across the spectrum, snagging 12.2% of the market, Black Knight reported in its latest Originations Market Monitor report.
Jumbo loans saw a boost last month as high interest rates made GSE products less attractive. Dollar volume flew up as a result, though locks fell.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances was 6.49% last week, while the conforming rate was 6.79%. Conforming rates finished the month 52 basis points above January’s levels.
Adjustable rate mortgages saw gains, accounting for more than 10% of the lending market.
“As rates resumed their upward trajectory in February, borrowers responded predictably, moving toward more rate-favorable offerings. That included a shift to jumbos, ARMs, and other nonconforming products in the month,” said Kevin McMahon, president of Optimal Blue, a division of Black Knight.
“With refinance activity basically at a floor, all eyes are on the purchase market. And yet such lock volumes remain more than 40% down from last year’s level, with the triple-threat of rate, affordability, and inventory challenges still looming large for the foreseeable future.”
Purchase lock volumes increased by 4% as well due to seasonal tailwinds, Black Knight said, but refis took a major hit as rates inched up. Cash-out refi volumes dipped 11%, while rate/term locks hovered near record lows. The two combined accounted for only 14% of February’s activity, a low point in this cycle.
Lenders desperate to attract borrowers are offering free refinancing, hoping the possibility of a future lower rate will entice nervous homebuyers.
But some industry analysts say “marry the house, date the rate” isn’t actually good advice. Companies offering free refinancing in a specific period of time — such as Texas-based Amplify Credit Union, which is offering no-cost refinancing within 24 months of the original closing– are banking on rates dropping significantly in a short time.
“[T]hat’s a dubious bet,” Alexis Leondis recently wrote in Bloomberg.
“Much will depend on whether the Federal Reserve tames inflation, whether the US enters a recession, and unpredictable geopolitical events.”
The central bank is considering another half-point rate hike this month thanks to indicators of sticky inflation. How long mortgage interest rates will remain near 7% is up in the air.
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— The Mortgage Note (@TheMortgageNote) March 10, 2023
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