Mortgage Interest on the Decline for Second Straight Month
The Federal Housing Finance Agency (FHFA) has conducted its monthly interest rate survey for 4,437 loans closed during the last five business days in April across 17 lenders, and has reported a decline by over 10 basis points across in all mortgage interest rates. Interest rates have been falling since February 2017.
The largest drop in interest rates from March to April was to 30-year fixed rates for homes costing less than $424,100, which fell 20 basis points from 4.24 percent to 4.04 percent. Factoring in other types of mortgages other than a 30-year fixed, the average interest rate on all mortgages showed the smallest drop, down 14 basis to 3.98 percent from a previous 4.12 percent.
The National Average Contract Mortgage Rate for Previously Occupied Homes Index, which calculates interest rates on homes with at least one previous owner, dropped to 3.97 percent from 4.12 percent (15 basis points), and is currently the lowest interest rate reported by the institutions surveyed. Similarly, the average effective interest rate on all loans also declined 15 basis points from 4.25 percent to 4.10 percent, which is good news for homeowners but less fortunate for lenders.
In keeping with April’s trend, the average loan amount also fell slightly from $312,700 to $311,600, a nominal difference of $1,100 in comparison to March’s $11,100 mean increase.
It’s worth noting that all reports, with the exception of the specified 30-year fixed, can include 15-year mortgages and adjustable-rate mortgages. The survey, however, does not include mortgages that were refinanced from another mortgage or balloon mortgages. Nor does it include mortgages that are insured or guaranteed by the Federal Housing Administration or the United States Department of Veteran Affairs, multi-family loans, or loans on mobile homes.
While the FHFA does not name the 17 lenders surveyed for the report specifically, it does specify that they include an array of commercial banks, mortgage companies, savings associations, and mutual savings banks.
Both mortgage originations and foreclosures are in freefall, according to the recent Mortgage Monitor report released by Black Knight Financial Services on Monday. Overall originations dropped 34 percent over the first quarter of the year, while foreclosure starts hit a 12-year low of just 52,800.
Though purchase loans and refinances took a hit during Q1, refis saw the steepest drop, falling 45 percent since the end of 2016 and 20 percent over the last year. According to Ben Graboske, EVP of Data & Analytics at Black Knight, this drop in refinances was no surprise.
“As expected, the decline was most pronounced in the refinance market, which saw a 45 percent decline from Q4 2016 and were down 20 percent from last year,” Graboske said. “They also made up a smaller share of overall originations than in the past; just 45 percent of total Q1 originations were refinances vs. 54 percent in Q4 2016.”
Purchase originations were down 21 percent over the quarter, though up slightly over the year, at 3 percent higher than 2016’s numbers.
“Purchase lending was up year-over-year, but the 3 percent annual growth is a marked decline from Q4 2016’s 12 percent and marks the slowest growth rate Black Knight has observed in more than three years—going back to Q4 2013,” Graboske said. “At that point in time, interest rates had risen abruptly— very similarly to what we saw at the end of 2016—and originations slowed considerably. The same dynamic is at work here.”
Though the decline of both numbers is worrisome, according to Graboske, it’s the lower credit scores of borrowers that should have the industry on edge.
“Not only are refinances—which generally tend to outperform purchase mortgages—making up a smaller share of the market, but there’s also been a net lowering of average credit scores as well,” Graboske said. “The average Q1 2017 refinance credit score was 742, down from 751 in Q4 2016, and the lowest average credit score since Q3 2014. Both of these factors could have a dampening factor on mortgage performance, holistically speaking.”
As for foreclosures, April marked the lowest month on record for first-time foreclosure starts, with just 24,200 for the month. Repeat foreclosures also dropped, hitting their lowest point since April 2008. The total delinquency rate for the month was 4.08 percent, with foreclosure pre-sale inventory dropping 3.47 percent.
The states with the highest share of delinquent loans were Mississippi, Louisiana, Alabama, West Virginia, and Maine.