Refis Remain Near Record Highs In Q1 2021 Despite Rate Increases

Black Knight, Inc.'s Data and Analytics division released the Mortgage Monitor Report that explores mortgage, real estate and public record datasets. The report found that despite interest rates spiking in recent weeks to more than 3.2%, Q1 2021 refinance lending volumes are still poised to remain near Q4 2020's record-breaking high.

"Roughly 2.8 million homeowners refinanced their mortgages in the last quarter of 2020, which saw a record-breaking $869 billion in refinance lending," said Black Knight Data & Analytics president Ben Graboske. "Assuming a 45-day lock-to-close timeline, daily rate lock data from Black Knight through mid-February suggests refi activity could remain steady in Q1 2021. Of course, that's before a recent spike in 30-year rates is expected to begin impacting closed loan volumes in late Q1 or early Q2. Still, by the end of March, another 2.8 million homeowners will have taken advantage of near-record-low rates to refinance their mortgages. It's important to remember that this would be coupled with a 25% reduction from Q4 2020 in purchase loans as well, resulting in an overall 10% quarterly decline.

"With rates on the rise, refinance incentive has been significantly curtailed. Just under 13 million high-quality refinance candidates remain in the market -- a nearly 30% drop in just the past three weeks. Added to that, retention of what is now a dwindling number of refinancing borrowers remains at record lows, with just 18% being retained by their servicers. Approximately 2.3 million borrowers were not retained in Q4 2020 alone. The current rate volatility serves to underscore the critical nature of both accurate and strategic pricing and advanced retention analytics to help identify borrowers who still have incentive and are out there transacting in the market."

According to the report, rate/term refinances were retained at a high rate of 23% than those pulling cash out as part of the transaction at 11%. Black Knight also reported that borrowers who took out their previous mortgage in 2019 continued to drive the largest volume of refinance originations at 20% and were also retained at one of the highest paces 24%. Folks who took out their prior mortgage earlier in 2020 drove 8% of all Q4 2020 refinances, representing a large volume of early refinance activity.

Click here to read more from Black Knight's Mortgage Monitor Report.