More record loan volumes in Q3 — but also more retention concerns

The third quarter of 2020 saw quarterly all-time highs in multiple lending categories, though retention issues continue to confound servicers, according to Black Knight’s latest Mortgage Monitor report.

Total origination volume for Q3 was at $1.3 trillion, with $867 billion in refinance lending and $455 billion in purchase lending, according to Black Knight. Each of those figures is a new record high, with the new total volume zenith surpassing the previous record of nearly $1.1 trillion set just one quarter earlier

Lenders are now on pace to reach almost $4.4 trillion in first-lien mortgage originations in 2020, which would easily surpass the previous peak — and Black Knight’s Ben Graboske said we could be in for even more, especially on the refinance side.

“As our rate lock data had suggested last month, Q3 2020 originations hit record highs in purchase, refinance and overall lending as record-low mortgage rates and a delay to the normal spring home-buying season spurred both the purchase and refinance markets,” said Graboske, president of data & analytics for Black Knight. “Some 2.7 million homeowners refinanced their first-lien mortgages in the third quarter, bringing the total through September 2020 to 6.4 million.

“What’s more, consolidated rate lock data from Black Knight’s Compass Analytics and Optimal Blue divisions suggests that number could climb above 9 million by year’s end. And, with rates continuing to sit at record lows, refinance incentive remains at historic highs. As of the last week of November, 19.4 million 30-year mortgage holders could likely both qualify for and benefit from a refinance.”

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Assuming that lock-to-close rates remain consistent with historical trends and factoring in a 45-day lock-to-close timeline, refinance volume could grow by 5% in the fourth quarter, per Black Knight’s rate lock data. With the same data projecting purchase volume to stay flat quarter over quarter, that would amount to a roughly 2% gain in total lending in Q4.

Discouragingly, however, retention rates have shrank during the upsurge of lending. Only 18% of the homeowners who refinanced in the third quarter were retained by their pre-refinance servicers, falling by tenths of a percentage point to drop to the lowest retention rate ever recorded by Black Knight.

Refi retention woes have become the norm as of late, with the retention rate dipping below 20% to kick off 2020 and staying under that level since. Retention rates rose along with refi volumes early last year, reaching their highest level in 18 months during 2019’s second quarter. Since, however, they have been on a steady decline, falling to six percentage points below their Q2 2019 peak.

Graboske had expressed concerns about the sinking retention rate as early as March and doubled down in September, even as Black Knight was reporting the now-eclipsed record origination volumes of 2020’s second quarter. Now, he’s cautioning servicers again, noting that a multifaceted approach is likely necessary to reverse the troubling trend.

“Pricing appears to be a significant factor in servicers’ ability to retain customers, as homeowners who changed lenders received noticeably better rates than those whose business was retained,” said Graboske. “In today’s rate environment, and up against fierce competition, lenders need the most precise product and pricing intelligence available. That said, successful retention likely goes beyond pricing to also include a positive customer experience.”


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