September 2021 Mortgage Monitor

JACKSONVILLE, Fla. – Nov. 1, 2021 – Today, the Data & Analytics division of ICE its latest Mortgage Monitor Report, based upon the company’s industry-leading mortgage, real estate and public records datasets. Though the pandemic and the Federal Reserve’s resulting accommodative stance on bond buying coincided with a historic refinance boom, indications that the Fed will begin to taper those measures have led to interest rates rising in recent weeks. This month’s report looks at how this is changing the dynamics of the refinance lending market. According to Data & Analytics President Ben Graboske, refinance activity during the pandemic resulted in essentially tens of billions of dollars in economic stimulus.

“The record low interest rate environment driven by the nation’s COVID-19 response resulted in nearly 9 million homeowners initiating rate/term refinances over the first 18 months of the pandemic,” said Graboske. “Together, these borrowers reduced their aggregate mortgage payments by more than $1.3 billion per month, for some $14 billion in realized monthly savings to date. In fact – assuming they all stay in their homes for the duration of 2022 – this group is on track to save nearly $35 billion in total by the end of next year. By nearly any measure, that is an extraordinary level of potential stimulus to the economy as a direct result of refinance lending.

“Keep in mind, that’s on top of the $322 billion homeowners tapped via 5.5 million cash-out refinances during the same period. More than half of the nation’s $9.1 trillion in tappable equity is still held by homeowners with first-lien rates above 3.5%, meaning the potential exists for continued growth in that segment – which has been driving the majority of refinance activity for months now. Plus, more than 70% of tappable equity is held by borrowers with credit scores of 760 or higher, which creates opportunities for lower-risk cash-out lending products, even as rates rise. Though almost all recent cash-outs have resulted in rate reductions, in late 2018 – when 30-year rates were close to 5% – more than 70% of cash-out borrowers accepted rate increases to access the equity in their homes. It would not be surprising to see similar behavior among ‘equity-centric’ borrowers as we move forward into 2022.”

As mentioned, interest rates have risen in recent weeks as the market has responded to the Fed’s indication that it will soon begin to taper its bond purchases. In fact, according to OBMMI daily rate tracking index, the average 30-year conforming rate is up nearly 20 basis points since the Fed meeting in late September, with 10-year Treasury yields up 33 basis points over the same period. The report also finds that while rising rates have cut the number of high-quality refinance candidates by 3.4 million (-23%), there is still more incentive in the market than at any time prior to 2020. Before that point, the refinance candidate population had never reached above 10 million. In contrast, as of October 21, there were still 11.5 million 30-year mortgage-holders with strong credit who could both likely qualify for a refinance and cut their first-lien rates by at least 0.75% by doing so. Much more detail can be found in September 2021 Mortgage Monitor Report.