After hitting a record low last week, yesterday morning’s Freddie Mac’s Primary Mortgage Market Survey® saw the average rate on a 30-year mortgage tick up slightly to 3.36%. The impact of the COVID-19 pandemic on global and U.S. markets continues to create volatility in U.S. Treasury yields, and therefore mortgage interest rates.
One thing seems clear from both anecdotal evidence and the Mortgage Bankers Association’s recent doubling of its 2020 refinance volume estimates, consumer refinance demand is high. Indeed, yesterday the MBA also reported that mortgage applications overall rose 55% week-over-week, with refinance applications rising to their highest level since April 2009.
Black Knight’s own data gives a sense of the potential here. We define refinance candidates as 30-year mortgage holders with a maximum 80% loan-to-value (LTV) ratio and credit scores of 720 or higher, who could shave at least 0.75% off their current first lien rate by refinancing.
Using that criteria, the population this morning is relatively unchanged from last week, but still as high as it’s ever been. Nearly 13 million homeowners have refinance incentive at today’s rates. That’s up 15% from just two weeks ago, and 60% from the start of the year.
On average, these borrowers could save $277 on principal and interest payments each month via a refi. Almost 2.3 million are in a position to save $400 or more on their monthly mortgage payment by refinancing into a new 30-year fixed loan, while more than 1.3 million could save upwards of $500 per month.
If all of these homeowners were to refinance, they could save a combined nearly $3.5 billion each and every month. This represents not only a large pool of savings available for homeowners, but also a significant potential stimulus for the economy as a whole, in a time of growing economic uncertainty.
It should be noted that Black Knight’s LTV and credit score assumptions are conservative by design and that there are refi products on the market available for borrowers with even higher LTVs and/or lower credit scores. Disregarding our broad-based eligibility criteria, there are actually some 24.5 million mortgage-holders who are “in the money,” with current interest rates at least 0.75% above today’s rate.
With lenders being inundated with incoming volume – and indeed, in some cases pricing above today’s prevailing rates as a way to stem that tide – this is as good a time as any to point out that those who have automated as much of the origination process as possible have a distinct edge in this environment.