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Industry originated $1.1 trillion in Q2

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Inside the Beltway
Tuesday, September 29, 2020

The mortgage industry posted its best second quarter in history, according to a report from Black Knight Inc.

The company said lenders originated nearly $1.1 trillion of first-lien mortgages in the second quarter – the most since Black Knight began tracking volume in 2000.

Black Knight Data and Analytics President Ben Graboske said a period of record-low interest rates has provided a much-needed backstop to the impact of shutdowns, unemployment and economic uncertainty.

“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,” Graboske said in a press release accompanying the report. “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.”

Refinances accounted for nearly 70 percent of the dollar value of first-lien originations in the quarter, up more than 60 percent from the first quarter and more than 200 percent from the second quarter of 2019.

Black Knight said rate lock data suggested that the spring homebuying season was shifted into the summer by the pandemic. Purchase locks scheduled to close in the third quarter are 23 percent above seasonal expectations, the company said. That would more than make up for second-quarter shortfalls, with the combination of the second and third quarter expected to be 6 percent above seasonal norms pre-pandemic.

In addition, refi volume could be even higher than it was in the second quarter. Refi locks expecting to close in the third quarter area up 20 percent from the second quarter.

“Rate locks are suggesting that we could see Q3 purchase lending break typical seasonal trends and rise by 30 (percent to) 40 percent, which would push us to a new record high,” Graboske said. “Likewise, while Q2 refinance activity was record-breaking, refi lock data suggests Q3 refinance volumes could climb even higher.

“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.”

In the midst of record-breaking refinance volume, retention woes persist for mortgage servicers, with the report showing just 18 percent of all refinancing borrowers being retained post-refinance in the second quarter.

Despite a nearly 17-year high in refinance originations, the business of just 22 percent of rate/term borrowers and a mere 13 percent of cash-out refinance borrowers was retained in servicers’ portfolios post-transaction. While that is a marked improvement for rate/term refinance retention rates since last quarter, it still results in servicers losing nearly 80 percent of their refinancing customers, Black Knight reported.

Driving the moves, data showed, is that borrowers are price-sensitive. High-credit borrowers refinancing into GSE mortgages in Q2 received an interest rate only 7 basis points lower on average than borrowers who were retained. Although pricing is important, Black Knight stated, the marginal rate differences between retained and lost borrowers suggest that proactively identifying and marketing to high-risk prepay cohorts might be key to raising retention rates.

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