Mortgage origination volume fell 34% in the first quarter compared with the fourth quarter, driven mainly by a 45% drop in refinances, according to Black Knight Financial Services’ Mortgage Monitor report. Overall, lenders originated about $372 billion in first-lien mortgages in the first quarter – the lowest volume seen since the fourth quarter of 2014. Purchase originations fell 21% compared with the fourth quarter but were up 3.0% compared with the first quarter of 2016, according to the report.
An ATTOM Data Solutions report also showed that a little over 1.4 million loans (refinance and purchase loans) were originated in the first quarter – down 30% compared with the fourth quarter and down 21% compared with the first quarter of 2016. What’s unusual about the drop in refinances is the fact that mortgage rates remained more or less flat during the first quarter, with fixed-rate mortgage hovering close to 4%.
Ben Graboske, executive vice president for Black Knight Data & Analytics, says the drop-off in refinances stems, in part, from the increase in mortgage rates that came in the fourth quarter. He points out that the same thing more or less occurred at the end of 2013. At that time, interest rates increased abruptly – similar to what happened at the end of 2016 – and originations slowed considerably. “The same dynamic is at work here,” Graboske said.
According to Graboske, refinance lending among higher-credit-score borrowers, who have largely driven the refinance market these past several years, saw a quarterly decline of 50%. On the other end of the spectrum, he said that lower-credit borrowers (scores below 700) only saw refinance volume decrease by 24%. “This is worth noting as we monitor the future performance of 2017 originations,” he stated. Graboske indicates that refinances, which tend to outperform purchase mortgages, are making up a smaller share of the market. He also noted that the average credit score has been lowering with the average 1Q 2017 refinance credit score of 742, down from 751 in 4Q 2016. “Both of these factors could have a dampening factor on mortgage performance,” said Graboske.
Perhaps more alarming for mortgage lenders is that purchase volume in the first quarter came in lower than had been forecast. “Purchase originations were down 21% from the fourth quarter of 2016 … and marks the slowest growth rate Black Knight has observed in more than three years – going back to the fourth quarter of 2013,” he added.