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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 48 January 2025 J O U R N A L mortgages, approaching 40%, as has been the case in previous years. "This brief, but welcome, spike in refinancing was dominated by home- owners quickly ditching their recently acquired mortgages," Walden said. "Refinances out of 2023 and 2024 vin- tages drove an impressive 78% of recent rate/term lending and nearly half of refi activity overall. The average rate/term refinancer had been in their prior mort- gage for just 15 months, the shortest average length of time in the nearly 20 years we've been tracking that metric. For most, this was a no-brainer; on average, these folks cut their first lien rates by more than a point and their monthly mortgage payment by $320 per month. That works out to roughly $47 million in monthly payment savings locked in by homeowners in just Sep- tember and October alone." Nearly a third were able to improve their rate by 1.5 percentage points (pp) or more, and over two-thirds of all rate/ term refinances saw a rate drop of more than a full percentage point. The big- gest monthly improvements were expe- rienced by borrowers with VA-backed mortgages, whose rates decreased by an average of 1.28 percentage points in October, while those of other loan types and investor classes decreased by 1.08 to 1.18 percentage points. "As you'd expect," Walden con- tinued, "the interest rate threshold at which a given homeowner would be enticed to pull the trigger on a refi varied by loan size. Nearly half of refinancing borrowers with balances between $250,000 and $375,000 needed a 125 basis point (bps) reduction before deciding to refi. The distribution of rate savings for those with balances between $375,000 and $624,000 were largely similar. Once a borrower's balance got above $750,000, however, it was clear that less rate incentive was required for a refinance to be of value. Nearly 40% of those borrowers cut their first lien 75 bps or less by refinancing, and about 12% saw benefit in doing so even with less than a 50 bps reduction." About 30% of rate/term lending in September and October was made up of refinances from and back into VA mortgages, which is about four times the percentage of active mortgages. Performance risk must be taken into account in addition to the elevated pre- payment risk that this entails. Loan-to- value ratios exceeding 100% have been seen in over 35% of 2024 VA rate/term refinances. This results from a mix of lending programs that enable borrowers to fund closing expenses and even interest rate buydowns up to specific levels, as well as the refinancing of more recent vintages, which haven't had time to strengthen their equity positions. CFPB EXAMINES TRENDS IN MORTGAGE APPS AND ORIGINATIONS T he annual report on changes in the residential mortgage lending sector was produced by the Consumer Financial Protection Bureau (CFPB). With loan applications and originations falling by roughly a third from 2022, 2023 experienced a sharp downturn in mortgage lending activity. With single-family refinance originations down over two-thirds from 2022, the fall was more pronounced in refinancing activity than in-house purchases. In 2023, a greater proportion of bor- rowers reported having paid discount points than in any previous year since data tracking started, and the median overall loan payments also increased dramatically. Since 1975, financial institutions have been required by the Home Mortgage Disclosure Act (HMDA) to gather and disclose specific loan-level data regard- ing mortgage applications and origina- tions. In 2011, the HMDA administration was turned over to the CFPB. Key Highlights From the CFPB Report: • In 2023, there was a sharp decline in loan originations and applications for both homebuying and refinanc- ing. Compared to 2022, the number of applications and originations fell by 30% and 32%, respectively, in 2023, continuing their downward trend. Single-family home refi- nances decreased by 64%. Cash-out refinance loans accounted for the majority of the remaining refinance originations in the market. • Higher monthly mortgage pay- ments were caused by rising interest rates. For borrowers obtaining a standard conforming 30-year fixed- rate mortgage, the average monthly payment (without taxes and insur- ance) increased from $2,045 in De- cember 2022 to $2,295 in December 2023. The increase in mortgage in- terest rates accounted for nearly all of the monthly payment increases. Despite this, there was no variation in the average debt-to-income ratio of applications for home purchases from year to year. This probably indicates that lenders are moving away from lower-income borrowers and toward higher-income ones. • Discount points were paid by more than half of the borrowers. Nearly a 13% rise over 2022, over 56% of single-family loan originations paid some discount points in 2023. The median discount points paid were approximately $3,900 for refinance loans and $3,000 for home pur- chase loans. • The overall cost of loans went up, but the hikes for Black and Hispanic borrowers were greater. In 2023, the median total loan cost for refinance loans was over $7,300, while the me- dian total cost for home purchase loans was over $6,700. Interestingly, the median total loan costs for house purchase loans increased more quickly for Black and Hispan- ic borrowers than for Asian and non-Hispanic white borrowers.