Loans

Advances in the small but important segment grew 14%



Many outstanding mortgages lack interest rate-related incentives Refinance But despite this, advances increased significantly in February as risks to other services receded.

“Overall, delinquency rates are down, foreclosure rates are down, prepayments are up,” said Gunnar Blix, director of housing market research at ICE Mortgage Technology, who summarized some takeaways from Mortgage Monitor’s latest monthly data analysis during a client webinar.

Delinquency rates are likely to remain subdued this spring due to tax rebates, but down payments are likely to continue to rise as home turnover increases. Spring home buying season A small but significant number of loans still face refinancing incentives.

Mortgage rates peaked at 7.79% last year, with loans originating from that level and The average gain for the week ended March 28 was 6.79% is the potential prospect of refinancing, and they seem to be responding.

Andy Walden, vice president of corporate research strategy at ICE, said that although the growth in down payments was not as influential as housing turnover and shrinkage, refinancing increased significantly by 14% in February to a 17-month high.

Overall, advances rose just 6.3% to their highest level since October.

“Prepayment activity was very low in October, but I think when you start looking at prepayments in the transition that we’ve seen over the past few months, there are a few things that catch your eye. One of them is refinancing activity. It hit,” Walden said.

Walden said the 2023 vintage in particular saw a 68% increase in velocity, rising to 9.33% from 5.53% in November.

“That’s going to be one to watch this year, not just from an origination perspective and an opportunity perspective, but from an upfront perspective, where we’ll definitely see the needle move the most,” Walden said.

In contrast, older loans with much lower interest rates continue to provide a strong deterrent to prepayments driven by housing turnover.

Walden said that when interest rates were at historic lows in 2020 and 2021, about 40% of the market applied for mortgages. If these borrowers purchased a home comparable to their own across the street, their monthly principal and interest payments would increase by 60%. Go to ICE to study.

The current average cost for similar moves in the mortgage market as a whole is 40%. This number may give homebuyers pause, as the more typical rule of thumb in the real estate market is that one should be able to get upgrades and return home once such premiums are paid.

By comparison, older borrowers in 2020 to 2021 had to pay an average of 132% more in P&I insurance to afford an upgrade.

Fed expected to lower short-term interest rates this year Mortgage costs may also be lowerit is hoped that the lockdown effects will be reduced; but Walden warned that this is unlikely to happen in the short term.

Walden estimates that even if current mortgage rates drop to 5%, many borrowers will still be locked in given that they took out loans in 2020-2021.

“It will take some time to loosen the market, but lower interest rates will certainly start to change that dynamic,” he said.

The recent deceleration in the personal consumption expenditures index, which policymakers watch closely, may increase the likelihood that short-term interest rates will fall in the first half of this year.

Co-founder and managing member Jack Macdowell said that as of this writing, federal funds futures indicate a 60% chance of a 25 basis point cut in short-term interest rates in June, but such indicators are generally too optimistic. Chief Investment Officer, Palisades Group.

Macdowell, an alternative asset manager specializing in residential credit, said the extent to which mortgage rates can fall is likely to be limited. Company modeling suggests a fall of up to 90 basis points in the broader market benchmark rate, which is more tilted than Freddie Mac.

“Based on current data, it’s hard to imagine more than one or two rate cuts in 2024, and it’s hard to imagine mortgage rates falling as measured by Bankrate.com (7.25%) or the Mortgage Bankers Association 30-year effective rate. Below 6.25%. Rate (7.10%),” he said.

He said a one percentage point cut in the Bank Rate figure “could unleash pent-up demand into an undersupplied property market, causing unnecessary housing inflation”.

“Mortgage rates will likely need to drop to the low to mid-5% range before borrowers feel comfortable giving up on low-rate mortgages, triggering the release of pent-up deferred sales and leading to much-needed supply-demand parity.” I said.





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