Mortgages, refinance volume smash records in second quarter, says Black Knight

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Everyone knows there’s a pandemic going on that’s disrupting much of daily life in America, but if you set that aside and look at mortgage origination data from this year, you might think something had jolted the economy into a prosperous frenzy.

With interest rates falling as the coronavirus pandemic escalated, the second quarter saw record-breaking mortgage-related transactions, according to data analytics firm Black Knight.

“Despite the nation being under pandemic-related lockdowns for much of the quarter, a record-breaking surge in mortgage originations occurred in Q2 2020, driven by the record-low interest rate environment,” Black Knight Data & Analytics president Ben Graboske said in a statement. “Nearly $1.1 trillion in first lien mortgages were originated in Q2 2020, which is the largest quarterly origination volume we’ve seen since first reporting on the metric in January 2000.”

That represented a 60 percent increase in mortgage originations over the first quarter of 2020, and a 200 percent increase over the second quarter of 2019.

The refinancing segment of the mortgage market saw even more activity in the second quarter, with more than 2.3 million originations. That’s four times more refinances than the second quarter of 2019, and a 17-year high for that metric.

Most of those refinancings were rate/term changes, but cash-out refis still grew at 6 percent in the second quarter as lenders cracked down on these types of loans to cut their risk.

Refinances accounted “for nearly 70 percent of all Q2 originations by dollar value,” Graboske said. “At the same time, purchase lending declined 8 percent year-over-year as the traditional spring homebuying season was impacted by COVID-19-related restrictions. However, mortgage loan rate lock data – a leading indicator of lending activity – suggests that the homebuying season was simply pushed forward into the third quarter.”

The data also shows that homeowners don’t have much loyalty to their current lender or servicer, ditching them in large numbers.

According to Black Knight’s study, less than a quarter of rate/term refinancers stayed with their original servicer after obtaining the new loan, and only 13 percent of cash-out refinancers were retained.

Black Knight predicts these trends will have accelerated in the third quarter.

“While Q2 refinance activity was record-breaking, refi lock data suggests Q3 refinance volumes could climb even higher,” Graboske said.  “With market conditions as they are and given the recent delay of the 50 basis points fee on GSE refinances until December, we would expect near-record low interest rates to continue to buoy the market. After all, there are still nearly 18 million homeowners with good credit and at least 20 percent equity who stand to cut at least 0.75 percent off their current first lien rate by refinancing.”

If you’re one of those 18 million who could save by refinancing, here’s what to do:

5 steps to prepare for a refinance

  1. Understand your financial goals. Are you refinancing to lower your monthly payment, or to tap your home equity to get cash for some other reason? Knowing why you want to refinance will help you figure out how to proceed and find the right mortgage product.
  2. Check your credit score and history. Most mortgage lenders have minimum credit requirements for refinance applicants, so before you go through the hassle of all that paperwork, you’ll want to be certain that you qualify.
  3. Check how much equity you have in your home. The more equity you have, the better loan terms you’ll qualify for, and those terms can affect whether or not it’s even worth it to refinance.
  4. Shop around. There’s a reason so many people found a new lender or servicer in the second quarter — your current mortgage holder might not be willing to offer you the best terms on a new loan. It’s best to explore all your options to make sure you’re getting the best deal.
  5. Be honest about your financial situation. You’re going to be paying off the new loan every month for many years. It’s important to disclose all aspects of your finances so you don’t wind up with a mortgage you can’t afford.

Learn more:

Written by
Zach Wichter
Mortgage reporter
Zach Wichter is a mortgage reporter at Bankrate. He previously worked on the Business desk at The New York Times where he won a Loeb Award for breaking news, and covered aviation for The Points Guy.
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