Approximately 82% of origination comes from purchase mortgages
The global mortgage rate freeze was hit in May, driven by a drop in refinancing activity, both for term refinances and withdrawals. In a higher rate environment, lenders were more dependent on the buying market for origination volumes.
Rate locks fell 4.8% last month, according to Black Knightmonthly report on the mortgage origination market. Buy locks, which are not as rate sensitive as refinances, accounted for 82% of the total share of rate locks in May, the largest slice since Black Knight’s optimal blue started tracking data in 2018.
Mortgage rates, as measured by Black Knight’s Optimal Blue OBMMI pricing engine, ended May at 5.34%, down 7 basis points from the previous month, but that wasn’t enough to increase the refinancing rate lock-in volume.
Rate/term refinance lending activity was down 23.6% in May from the prior month and 89.9% year-over-year. Withdrawal rollover locks also fell 11.9% from April and 42.2% from May 2020.
“We’ve seen rate/term refinance activity evaporate and withdrawal activity suffer as well,” said Scott Happ, president of Optimal Blue, a division of Black Knight. “While there is volume pressure across the board due to rising rates, buy volumes are holding up the best and are now driving 82% of all origination activity.”
Purchase volumes fell 2.3% in May from April and remained unchanged from the same period last year. Excluding the effect of home appreciation on volumes, purchase locks fell 8.5% year-over-year in May.
Government loan products have gained market share as Federal Housing Administration (FHA) and veterans affairs (VA) foreclosure activity increased at the expense of agency volumes, a trend also likely reflected in the decline in average loan size, ranging from $362,000 to $359,000, according to Black Knight.
Borrowers’ credit scores have fallen by 20 points over the past three months, which are now below 700 on average. A sharp drop in cash-out refinance credit ratings drove the drop in May, which fell 33 points year-over-year.
Black Knight’s monthly Market Monitor reports provide origination metrics for the United States and the top 20 metropolitan statistical areas by share of total origination volume.
MSA New York-Newark-Jersey City had the highest rate lock volume at 4.4% in May. The Washington-Arlington-Alexandria area had the second highest lock volume rate (3.8%), behind the Los Angeles-Long Beach-Anaheim area (3.7%).