Cash-out activity sheds previous resilience as mortgage rate locks continue to slide

Mortgage rate-lock activity continues to slip, falling 9.9% from August to September, according to the latest Originations Market Monitor report from Black Knight.

It’s the sixth straight month that rate-lock activity has slid, and overall lock volumes have been pushed down 30% in the past three months. Year over year, rate locks have fallen by an astounding 57.2%, driven by the dramatic plunge in refinance activity.

Refinances comprised only 16% of September’s lock volume — a new low — with cash-out refis accounting for nearly three-quarters of this figure. But cash-out loans, which had been steady even in the face of rising rates, have slowed of late and declining by 26.2% month over month in September. And since September 2021, locks for cash-out refis have dropped by 78.2% while those for rate-and-term refis have plummeted by 93.3% during the same period.

Purchase loan locks, on the other hand, were down 7.6% from August and 29.4% from September 2021.

The stark decreases in rate-lock activity have been principally driven by the sharply rising rate environment. Scott Happ, president of Black Knight division Optimal Blue, noted that seasonality has played some part in the recent slowdown, although he reiterated that declining affordability has clearly been the primary factor. And with about 90% of all active first-lien mortgages carrying an interest rate below 5%, it’s highly likely that refi movement, as well as rate locks as a whole, will continue to trend down in the near term.

“Interest rate and affordability challenges have fundamentally changed the mortgage origination market for the remainder of 2022 – and the foreseeable future,” Happ said. “Interest rates are now at their highest level in 15 years while affordability is at 37-year lows. Given these realities, it’s not particularly surprising that rate locks are falling sharply. Keep in mind, however, that all this is coinciding with the already traditionally slower purchasing months.”

“Interest rates jumped almost a full percentage point in September, with affordability headwinds already high,” he continued. “Home prices are pulling back in a growing number of markets, but across the country, affordability remains a challenge.

This is likely one reason why nonconforming loans gained market share and we saw an increase of the average loan amount. The decline in purchase lock volumes bears this out as well. Purchase lock counts – which exclude the impact of soaring home values on dollar volume – show we’re down more than 10% from 2019 levels, marking the third consecutive month that the number of purchase locks has fallen below pre-pandemic norms.”


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