Homeowners are losing enthusiasm for refinancing

Mortgage lenders faced a double whammy in May, with demand for home purchase and refinance loans falling even as mortgage rates fell again after rising in February in March.

Mortgage lenders faced a double whammy in May, with demand for home purchase and refinance loans falling even as mortgage rates fell again after rising in February in March.

The pullback in “rate and term” refinances, in which homeowners refinance to take advantage of lower rates, rather than withdrawing their home equity, was particularly pronounced, according to Black Knight Origins Market Monitor report.

Rate and term refinance rate locks fell 8.2 percent from April to May, compared with a 3.4 percent drop in purchase locks. Cash-out refinance locks were also down 3.4 percent month-over-month.

Compared to a year ago, rate and term refinance locks were down 45 percent, while purchase loan rate locks were up 42 percent. Cash-out locks were also up 32 percent from the prior year.

On the bright side, for lenders at least, the median loan amount increased by $ 6,000 in May, to $ 316,500, which Black Knight said is likely the result of rising house prices and demand for jumbo mortgages.

Refinancing accounted for just 44 percent of all rate locks in May, up from 61 percent a year ago.

Fountain: Black Knight Origins Market Monitor.

The drop in purchase locks from April to May can be largely explained by inventory shortagesaid Scott Happ, president of Black Knight Secondary Marketing Technologies, in a statement.

Scott Happ

But the drop in refinance locks “seems to have more to do with borrower psychology,” Happ said. “Certainly the February rate hike drained some of the enthusiasm in the market, but despite significant increases in refinance incentives since then, refinance activity has simply not recovered as expected.”

A drop in interest rates in April increased the number of homeowners who have an incentive to refinance by 15 percent, to more than 14 million, Happ said, “but the volume of the rate lock has not been able to keep up. Instead, refinance rate locks have dropped 27 percent over the same time period, slowing in what would otherwise be an expected acceleration time. “

While mortgage rates stabilized in May, this week’s Federal Reserve meeting could see rates rise again, with new inflation figures and a gradual decline in Fed mortgage bond purchases. probably on the agenda.

Lenders have been expecting a drop in refinances if interest rates rise and are looking to grow their home loan business. LoanDepot, for example, has formed four joint ventures since December: three with home builders, and another with Farm Bureau Bank.

Even if a recent Fannie Mae poll found that most Americans think the shortage of listings makes it a bad time to buy a home, a record 72 percent saying they would still rather buy than rent if they moved.

Anthony Hsieh | Photo credit: LoanDepot

in a May 3 call for investorsAnthony Hsieh, founder and CEO of CreditDepot, said rising home values ​​have also created “tons of opportunities for refinancing.”

“Americans enjoy a record loan-to-value ratio and high equityHsieh said. “There is a lot of consumption, through all kinds of purchases, as we all know, in the current market. We’re seeing huge demand and an increase in cash-out refinancing, and as you know, shopping continues to be very, very healthy. “

in a recent Twitter post, Reali Loans assured homeowners that, “An out of this world home theater system is an acceptable reason to refinance your mortgage.”

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