Origination activity fell for the fourth consecutive month in December as higher rates and seasonal slowdown pushed rate locks down, according to Black Knight’s December 2021 Origination Market Monitor.
Rate locks fell 18.3% from November to December and 35% year-over-year (YOY), fueled by a 22.5% drop in locks on purchase loans and a 17.1% drop in rate/term refinances. Rate/terms refis hit their lowest point in two years at the end of 2021.
Locks on cash-out refis also dropped by 10% from November, though they are up 18% YOY thanks to incredible gains in home equity.
The share of refinances rose to 48% due to the decline in purchase locks, though average refi credit scores were down 20 points YOY as higher credit borrowers tend to wait out raising rates.
“With the Federal Reserve speeding the tapering of its bond buying and indicating multiple rate hikes in 2022 to curb inflation, 30-year conforming rates sat above 3.3% for much of December,” said Scott Happ, president of Black Knight Secondary Marketing Technologies.
“Indeed, our OBMMI daily interest rate tracker showed average rates at year’s end within just two basis points of the 2021 high of 3.37%. Likely in response to those rising rates – and the seasonal slowdown in home purchases – we saw locks decline across all product types in December, with total volume down 35% year-over-year.”
Non-conforming loan products continued to gain popularity in December as the average loan amount rose to $341,000, up $4,000 month-over-month.
Non-QM loans have gained attention during the pandemic as a viable loan option for potential homebuyers with non-traditional incomes. Proponents for non-QM loans point out that small business owners, self-employed contractors, and gig economy workers comprise 48% of the private workforce and can struggle to find conforming loans to fit their financial profiles.
Companies like Angel Oak and A&D Mortgage are banking on the housing market remaining stable so non-QM loans can continue to grow. Angel Oak recently reached a lifetime securitization issuance of more than $10 billion.
“Reaching the $10 billion milestone not only reinforces Angel Oak’s position as a leader in the securitization market but also serves as a reminder of the importance — and prevalence — of non-QM lending and investor appetite for these loans,” said Sreeni Prabhu, group chief investment officer at Angel Oak.