Refinances Drove Mortgage Origination Volume In 2016
Two reports released in early March show that mortgage origination volume was up significantly in 2016 compared with 2015 and that – perhaps to no one’s surprise – refinances accounted for more than half of total volume.
According to ATTOM Data Solutions’ Residential Property Loan Origination Report, more than 7.3 million loans were originated on U.S. residential properties (one to four units) in 2016 – up 2% compared with 2015 to reach the highest total since 2013.
Looking just at the fourth quarter, more than 1.7 million loans were originated – down 15% compared with the third quarter but up 2% compared with the fourth quarter of 2015, the company says.
More than $461 billion in loans was originated in the fourth quarter – an increase of 8% compared with a year earlier.
Most of the originations in the fourth quarter were refinances, which, according to Daren Blomquist, senior vice president at ATTOM Data Solutions, was “surprising, given the rising interest rates.” However, “many homeowners may have been trying to lock in still relatively low interest rates before those interest rates rose further,” he explains.
“On the other hand, rising interest rates did seem to have a chilling effect on home buyers using financing, as evidenced not only by the drop in purchase loan originations, but also a corresponding rise in the share of cash buyers, drop in Federal Housing Administration [FHA] buyer share, and a rise in the average down payment percentage in the fourth quarter compared to the previous quarter,” Blomquist adds. “For the year, the median down payment for loans secured by single-family homes and condos was 6.0 percent of the median sales price nationwide – the lowest down payment percentage since 2012 but still close to twice the 3.3 percent in 2006 during the last housing boom.”
About 3.3 million refinance loans were originated in 2016 – up 4% compared with 2015, according to the report.
Meanwhile, almost 2.8 million purchase loans were originated – down 1% compared with 2015.
About 595,500 of those purchase loans came in the fourth quarter. That’s down 26% compared with the third quarter and down 12% compared with the fourth quarter of 2015.
It was the second consecutive quarter to see a year-over-year decrease in the number of purchase loans, following eight consecutive quarters of year-over-year increases.
The total dollar volume of purchase originations in the fourth quarter was more than $161 billion, down 25% compared with the previous quarter and down 8% compared with a year earlier.
The ATTOM report shows that non-bank mortgage lenders continued to gain market share from the big banks: The top two purchase loan originators in the fourth quarter were Quicken Loans (14,678) and Caliber Home Loans (12,075), followed by Wells Fargo (10,826), Fairway (9,149) and JP Morgan Chase (7,994).
Caliber Home Loans saw its fourth-quarter originations increase 21%, while Fairway saw an increase of 19% and Quicken Loans 4%.
Meanwhile, the two traditional big banks in the top five both posted year-over-year decreases in purchase loan activity in the fourth quarter: JP Morgan Chase down 15% and Wells Fargo down 5%.
A total of 883,836 refinance loans were originated in the fourth quarter – down 6% from the previous quarter but still up 20% from a year earlier.
The total dollar volume of refinance originations in the fourth quarter was more than $246 billion, down 5% from the previous quarter but still up 27% from a year ago.
Interestingly, the report shows that the share of loans backed by the FHA dropped to a two-year low in the fourth quarter.
A total of 226,142 FHA loans were originated in the fourth quarter – down 21% from the previous quarter and down 9% from a year earlier. FHA loans accounted for 15.3% of all loans originated during the quarter – down from 16.4% in the previous quarter and down from 17.6% a year earlier.
Separately, Black Knight Financial Services’ Mortgage Monitor report shows that a strong fourth-quarter finish pushed total 2016 origination volumes to the highest level seen in nine years.
Mortgage lenders originated $2.1 trillion in first-lien mortgages in 2016 – an increase of 17% compared with 2015, according to Black Knight. Much of this, of course, was driven by refinances, which increased 22% compared with the previous year. Purchase originations increased 13%, according to the firm’s data.
“We’ve now seen nine consecutive quarters of double-digit purchase origination growth and growth overall in the purchase market in 21 of the past 22 quarters,” says Ben Graboske, executive vice president of data and analytics for the firm.
He adds that 2016 “was the second straight year of double-digit growth in purchase lending, which hit its highest yearly total since 2006 at $1.1 trillion.”
Still, purchases were down 28% compared with the peak volume seen in 2005.
The nearly $300 billion in refinance originations in the fourth quarter marked a 58% increase over the fourth quarter of 2015, according to the report.
“The refinance market topped $1 trillion in 2016, driven by a year of historically low rates,” Graboske says, adding that refinance origination volumes were “the highest of any quarter since the second quarter of 2013.”
“However, prepayment speeds fell by 30 percent from December to January,” Graboske adds. “When you couple this with the fact that there are 5.7 million, or nearly 70 percent, fewer refinance candidates in the market entering the first quarter of 2017 than there were entering the fourth quarter of 2016, it becomes very likely that we will see these numbers decline significantly in the first quarter.”
Ellie Mae: Mortgage Credit Loosened In January
Mortgage credit apparently loosened somewhat in January, at least in terms of the average FICO score on closed loans, according to Ellie Mae’s Origination Insight report.
The report shows that the average FICO score for all closed loans was about 722, which is the lowest it has been since March 2016.
That’s down from an average of 726 in December and 728 in November.
The refinance share of closed mortgage loans flowing through the company’s Encompass mortgage lending platform reached 47% in January – up slightly from 46% in December. That’s probably due to two factors: 1) mortgage borrowers realizing that this is probably their last chance to capitalize on lower rates before they start rising again later this year, and 2) the fact that rates dipped back down during the first few weeks of January, after increasing in December.
The average time to close a mortgage loan, for all loan types, increased to 51 days, which is the highest it has been since at least September 2015 (i.e., prior to the implementation of the Consumer Financial Protection Bureau’s TILA-RESPA Integrated Disclosure rule on Oct. 3, 2015).
The time to close a refinance increased to 53 days, while the time to close a purchase loan held steady at 48 days. This is likely due to lenders cutting back on resources in their refinance departments in anticipation that rates will continue to increase later this year.