ICE Mortgage Monitor: As Market Gradually Shifts to Higher Rates, Latest Data Identifies Possible Refinance Tipping Point
ICE Mortgage Technology's July 2024 Mortgage Monitor Report reveals significant shifts in mortgage interest rates. As of May, 24% of mortgage holders have rates of 5% or higher, up from 10% two years ago. The report notes that 4 million loans originated since 2022 have rates above 6.5%, with 1.9 million exceeding 7%. Interestingly, there's a spike of 690K loans just below 7%, potentially indicating a tipping point for refinance activity. The VA market has seen substantial growth in refinancing, now accounting for over 30% of recent rate locks, up from less than 10% a year ago. This surge is largely due to streamline refinances, providing average monthly savings of $230 per borrower. Additionally, refinance retention hit an 18-month high in Q1, largely driven by VA and FHA loans.
- Refinance retention reached its highest level in 18 months in Q1, tripling from 15% to 46%.
- VA refinance market share grew from under 10% to over 30% of recent rate locks.
- Average monthly savings for VA refinance borrowers reached $230.
- High prepay speeds among VA loans could negatively impact investors in VA loan-backed securities.
The ICE Mortgage Monitor Report highlights a shift in the mortgage landscape, as a greater percentage of homeowners now hold mortgages with rates of 5% or higher. This is a significant uptick from the past two years. The data suggests that about
From a financial standpoint, investors should monitor the potential rise in refinance activity, which could be indicative of improved lending volumes for banks and lending institutions. With the average VA refinance borrower saving around
The shift to higher-rate mortgages opens an avenue for lenders to tap into the growing market of homeowners with higher rates looking to refinance. Nevertheless, the overall refinance volume remains a fraction of historical levels, tempering short-term gains. In contrast, the long-term outlook may see incremental benefits as more homeowners become eligible for refinancing.
For retail investors, this trend could signal opportunities in the mortgage-backed securities market, albeit with caution. The recent spike in prepayment speeds among VA loans could negatively impact these securities, making it important to weigh the benefits against potential risks.
The report also highlights the increasing share of VA loan refinances, which now account for more than
From a market research perspective, this trend underscores the importance of targeted products that address specific borrower needs. Lenders who effectively market and offer streamlined refinance programs could see increased retention rates and borrower satisfaction. However, it's important to be cognizant of the higher prepayment speeds, which can have a negative impact on investors in VA loan-backed securities.
For retail investors, understanding these dynamics can help identify lending institutions with strong VA and FHA loan portfolios. These companies may stand to benefit from increased refinance activity and improved borrower retention rates. The critical factor remains how well these lenders can manage the balance between offering attractive refinance terms and mitigating the risks associated with high prepayment speeds.
The data also reveals a psychological element in borrower behavior; a noticeable cluster of loans sits just below the 7% threshold, as homeowners seem to prefer a mortgage rate that starts with a 6. This preference indicates that even small rate reductions can potentially trigger refinancing activity. Lenders should pay close attention to these psychological factors when designing and marketing refinancing products.
This behavior can be leveraged by lenders to create tailored, psychologically appealing loan products that cater to this subset of borrowers. By offering slightly lower rates than the market average, lenders can attract more refinance applications, thus increasing their loan portfolios.
For investors, recognizing these psychological triggers can be beneficial when evaluating the potential performance of mortgage lenders. Companies that successfully tap into borrower psychology and offer competitive rates may see higher refinance volumes, leading to improved financial performance in the short to medium term.
However, it's important to remain cautious of the broader economic impacts, such as potential increases in loan balances and the associated risks. A balanced approach, considering both borrower psychology and financial health, will be key to navigating this evolving mortgage landscape.
-
According to ICE Mortgage Technology data and analytics, as of May,
24% of mortgage holders had current interest rates of5% or higher, up from10% two years ago -
Four million loans originated since 2022 have rates of
6.5% or higher – 1.9M at7% + – providing modest opportunity for growth in the number of mortgage holders with incentive to refinance as rates ease -
An average of ~240K mortgages sit in each 1/8th of a percent rate band from 7
-7.625% providing only modest increases to the number of in-the-money mortgages as those loans gain refinance incentive -
There’s a spike of 690K loans with rates just below
7% , driven in part by borrowers buying down their rates for the comfort of an interest rate that starts with a 6, which could be a tipping point to more meaningful, albeit still modest, refi activity as those borrowers gain incentive to refinance -
The VA share of rate/term refi activity experienced a noticeable upswing in recent weeks, accounting for more than
30% of recent rate locks, according to ICE originations data, up from less than10% last year -
The average VA refinance borrower is early into their 30-year term (average prior loan age of ~1 year) and benefitting from a 1pp cut in their first lien mortgage rate, for an average savings of
per month$230 -
Refinance retention hit its highest level in 18 months in Q1, driven in part by a tripling of rate/term retention – from
15% in Q4 to46% in Q1 – among borrowers refinancing their VA and FHA loans
This month’s Mortgage Monitor looks into the dynamics behind the changing makeup of the active mortgage market, which is gradually shifting toward higher average rates. As Andy Walden, ICE’s Vice President of Research and Analysis notes, the overall market remains heavily skewed toward lower-rate mortgages, but that is changing.
“As of May,
“All in, there are 5.8M fewer sub
As noted in the report, 4M first lien mortgages originated since 2022 have 30-year rates above
“The concentration of active loans just below
For now, refi volumes remain at a fraction of historical levels. That said, we have seen some notable shifts in who is taking out refis in today’s market. Consider, for example, the recent rise in VA market share, from less than
The rise in VA refinance share seems to be due, in large part, to streamline refinances. Some veterans, especially those who had taken out mortgages within the past year, availed themselves of the streamlined refinancing program to lower their interest rate by more than a full percentage point, for an average savings of
That makes sense, considering the ICE
Those lower payments come at a cost, however, as the average borrower increased their loan balance to buy down their rate and/or finance closing costs. The quick turn also resulted in unusually high prepay speeds, which can negatively impact investors in VA loan backed securities.
The recent activity among VA loans supports the findings of the recently released 2024 ICE Borrower Insights Survey, which showed that finding the lowest mortgage rate trumped all other concerns when choosing a lender, with a 20-point delta between that and the next most frequent choice. But, while borrowers want the lowest rate, they typically don’t consider many options.
In fact,
Much more information on these and other topics can be found in this month’s Mortgage Monitor.
About Mortgage Monitor
ICE manages the nation’s leading repository of loan-level residential mortgage data and performance information covering the majority of the overall market, including tens of millions of loans across the spectrum of credit products and more than 160 million historical records. The combined insight of the ICE Home Price Index and Collateral Analytics’ home price and real estate data provides one of the most complete, accurate and timely measures of home prices available, covering
ICE’s research experts carefully analyze this data to produce a summary supplemented by dozens of charts and graphs that reflect trend and point-in-time observations for the monthly Mortgage Monitor Report. To review the full report, visit: https://www.icemortgagetechnology.com/resources/data-reports
About Intercontinental Exchange
Intercontinental Exchange, Inc. (NYSE: ICE) is a Fortune 500 company that designs, builds, and operates digital networks that connect people to opportunity. We provide financial technology and data services across major asset classes helping our customers access mission-critical workflow tools that increase transparency and efficiency. ICE’s futures, equity, and options exchanges -- including the New York Stock Exchange -- and clearing houses help people invest, raise capital and manage risk. We offer some of the world’s largest markets to trade and clear energy and environmental products. Our fixed income, data services and execution capabilities provide information, analytics and platforms that help our customers streamline processes and capitalize on opportunities. At ICE Mortgage Technology, we are transforming
Trademarks of ICE and/or its affiliates include Intercontinental Exchange, ICE, ICE block design, NYSE and New York Stock Exchange. Information regarding additional trademarks and intellectual property rights of Intercontinental Exchange, Inc. and/or its affiliates is located here. Key Information Documents for certain products covered by the EU Packaged Retail and Insurance-based Investment Products Regulation can be accessed on the relevant exchange website under the heading “Key Information Documents (KIDS).”
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 -- Statements in this press release regarding ICE's business that are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see ICE's Securities and Exchange Commission (SEC) filings, including, but not limited to, the risk factors in ICE's Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 8, 2024.
Source: Intercontinental Exchange
Category: Mortgage Technology
ICE-CORP
View source version on businesswire.com: https://www.businesswire.com/news/home/20240702806531/en/
ICE Media Contact
Mitch Cohen
mitch.cohen@bkfs.com
+1 (704) 890-8158
ICE Investor Contact:
Katia Gonzalez
katia.gonzalez@ice.com
+1 (678) 981-3882
Source: Intercontinental Exchange
FAQ
What percentage of mortgage holders have interest rates of 5% or higher as of May 2024?
How many loans originated since 2022 have interest rates above 6.5%?
What is the current VA refinance market share according to ICE?
How much do VA refinance borrowers save on average per month?