Mortgage Market Sees Balance Shift in February
The mortgage market achieved a more balanced mix in February as purchase money loans rebounded from a disappointing January
- Purchase lending rebounded: Purchase lock volume rose 14% month-over-month and 5% year-over-year, signaling a stronger start after January’s slowdown.
- Refinances still a big share: Refinancing accounted for 41% of rate lock volume, supported by the 30-year fixed rate dropping to 5.9%.
- ARMs gaining traction: Adjustable-rate mortgages reached 10% of volume, as borrowers looked for ways to offset higher interest rates.
Purchase lock volume rose 14% month-over-month in February and 5% year-over-year, which Optimal Blue describes as “a meaningful improvement from January’s slower start to the year.”
Refinancing volume remained strong, accounting for 41% of total rate lock volume despite a slight drop from 44% in January. The popularity of refinances stemmed from the 30-year conforming fixed-rate ending the month at 5.9%, a decrease of 17 basis points, according to the company’s benchmark index.
Rate-and-term refinance locks increased the most, up 3% from January and 280 basis points from February 2023. Cash-out refinance volume rose 1% and 34%, respectively, the capital markets platform reported.
Conforming loans commanded more than half of total lending volume in February with a 53% share. This was up 62 basis points year-over-year but down 28 basis points from January. Non-conforming loans garnered a 16% share, up 91 basis points month-over-month and 90 basis points from a year ago.
Government lending accounted for nearly a third of February’s volume, Optimal Blue reported. Federal Housing Administration (FHA)-insured loans accounted for 17% of February’s lending, while Department of Veterans Affairs (VA)-backed loans took a 13% share, and Department of Agriculture (USDA)-backed loans accounted for 1%.
To overcome still relatively high rates, more borrowers opted for adjustable-rate mortgage (ARM) loans last month. Ten percent of February’s volume was in ARMs, up 1.1% month-over-month and 3.4% year-over-year from 6.5% in February 2023.
By property type, single-family houses were responsible for almost two-thirds of the volume, while loans in planned unit developments accounted for nearly one in every three mortgages. Condominium lending stood at 6%, while factory-built houses garnered just a 1% share.
The report also found that borrowers in February showed strong credit records. By loan product, the average score on conforming loans was 756. It was 718 on VA loans and 678 on FHA mortgages. By loan purpose, the average score on purchase funding was 734. It was 749 on rate-and-term refinances and 705 on cash-out refinances.
First-time homebuyers took 70% of all FHA loans, 48% of VA mortgages, and 46% of all conforming mortgages. Pull-through rates declined in February for purchase loans to four out of every five, while they rose to 74% for refinances.