As stakeholders across the mortgage industry prepare for a highly anticipated interest rate cut after the Federal Open Market Committee (FOMC) meets on Sept. 17-18, the refinance opportunity — it seems — is all anyone can talk about.
With purchase borrowers proving difficult to entice even with improving affordability and for-sale inventory, lenders eye the two years’ worth of high-note originations since mid-2022 as a windfall-in-waiting — a refinance “wave” if not a “boom,” per se.
Vishal Garg, CEO of Better Home & Finance Holding Co., parent company of digital lender Better.com, says more than 1.5 million homeowners have a mortgage rate over 7% who qualify for the FHA Streamline Refinance that his company rolled out yesterday. “There’s no credit check, there’s no income check, and there’s no appraisal,” he explains. “Basically, you can reset your note rate to the current note rate really, really easily.”
August ended with 30-year-fixed mortgage rates averaging 6.35%, and the refi opportunity for lenders and originators already emerging. New data from CoreLogic shows that the market opportunity for refinances may be even greater than Garg anticipates.
Refinance Opportunity
In a review of 15.7 million loans currently being serviced, CoreLogic discovered that roughly four million borrowers representing nearly $735 billion in unpaid principal balance (UPB) could benefit from refinancing if mortgage rates reach or drop below 6%. Of course, that pool of refinance candidates expands the lower mortgage rates fall.
“I don’t think you’re going to see a deluge of refis,” Garg says. “I think what you’re going to see is people coming back into the market, but more importantly, people feeling more certain about the market, particularly on the purchase side.”
The extent to which borrowers who purchased homes in the past two years using FHA-backed loans, and may qualify for the FHA Streamline Refinance, appears more difficult to assess, though, given the rise in low-money-down, piggyback mortgages. From June 2022 to June 2024, the share of piggybacked FHA purchase loans rose from 10.8% to 18%. In June 2024, the combined LTV (CLTV) reached 1.022 for FHA borrowers and 1.0 for conventional borrowers purchasing with piggybacked mortgages.
FHA borrowers with little or negative equity won’t qualify for the streamline refinance product, but Garg says Better.com is focusing on the many FHA borrowers who do. In fact, FHA loans were not a product that Better.com used to actively advertise.
“It was something that a consumer had to actively request,” he explains. “Now we’re actively marketing the FHA product to a broad segment of the U.S. population.” A shift to a falling-interest-rate environment creates a shift in the purchase-money mindset, too. “The idea that,” he continues, “rates aren’t gonna go up on me while I’m home shopping. The rates are likely to come down, so I should be in the market now shopping for a home.”
A Market In Transition
Now, Garg sees a trifecta of changes hitting the mortgage industry over the next six-12 months, all of which he expects to “loosen up” transactions.
“People estimate that there’s over 20 million consumer families that have sought to buy a home in the past two years that have been unable to do so,” he explains. “Supply opening up, people with pent-up demand coming back into the market, and cash-out refinances and refinances coming back into the market — all three of those are going to hit the market at the same time.”
Better.com has been preparing for this inflection point by hiring seasoned loan officers and “dropping pre-approvals in their lap,” according to Garg, the pre-approval process streamlined by Better.com’s digital platform. Even more ambitiously, “we’re looking to scale from the 200 loan officers we have now to over a thousand loan officers in the coming two, three years,” Garg projects.
The opportunity in 2025 that no one is really talking about yet, Garg says, is cash-out refinance. Citing the pre-meltdown market of 2006 and 2007 when cash-out refinances comprised nearly 40% of the total mortgage market, Garg believes that macroeconomic uncertainty — and a likely recession, in his opinion — will cause the cash-out refinance market share to rise “dramatically.”
“I think that you’re seeing a significant slowdown in the economy, and I don’t think that we’re going to have the soft landing that people are predicting,” Garg says.
Rising insurance costs and high-rate auto and credit card debt will make cash-out refinances necessary for some, particularly as mortgage rates move into “5% land.”
“People are going to have to find a way to pay for this stuff going into a recession,” Garg continues. “People are going to want to extract the equity in their home and have it in their checking account.”
