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GSEs bankroll fewer loans in Q1

The industrywide decline in refinancing continues to translate into weaker borrower demand for loans originated for Fannie Mae and Freddie Mac.

Fanniecount05In the first quarter, the government-sponsored enterprises (GSEs) collectively acquired 766,000 loans with an aggregate balance of $178.2 billion, the GSE financial reports indicate.

Fannievol05That was down 15 percent in terms of counts and 13 percent in loan volume compared to the first quarter of 2017.  

Freddiecounts05Of the two GSEs, Freddie Mac, saw a far more significant decline in its activity.

Freddievol05The GSEs do not originate loans, but purchase loans from lenders and then typically securitize them for end investors. Fannie and Freddie bankroll the most popular single-family loan type comprising roughly half of all single-family originations, and thus their activity can shed light on general mortgage trends. 

Freddie’s first-quarter loan counts (282,000 mortgages) and volume ($66 billion) each fell by 23 percent year over year. Fannie’s loan counts (484,000) were down year over year by just under 10 percent, and its volume ($112.2 billion) declined by 5 percent.

The first-quarter drop in the GSEs numbers were driven by a double-digit decline in acquisitions of refinanced loans. The GSEs collectively acquired 356,000 refinanced loans in the first quarter, down by 30 percent year over year and roughly on par with the weak 2014 level of 373,000 loans.

It is no coincidence that the GSE's 2018 refinancing numbers are in the same ballpark as the numbers reported in 2014, a year when mortgage rates roughly matched today's rates. In June 2013, the 30-year fixed rate jumped 50 basis point after the then-Federal Reserve Chair Ben Bernanke touched off the so-called “taper tantrum,” when he hinted that the Fed would gradually tighten its monetary policy. Mortgage rates eventually ran up to 4.46 percent, and remained above 4 percent for most of 2014, according to Freddie Mac.  

The 30-year fixed rate hit 4 percent again last May and has generally risen since then. According to the Federal Housing Finance Agency (FHFA), a conventional mortgage interest rate averaged 4.42 percent in March, up 18 basis points from 4.24 percent in February. Some experts expect the rate to top 5 percent by the end of this year.  

Rising interest rates have almost entirely wiped out the population who could benefit from a rate-term refinance, Black Knight reported on Monday. The total number of people eligible to refinance stood at 2.3 million borrowers, the lowest pool of candidates since November 2008, when mortgage rates were at 6 percent. Black Knight estimated that fewer than 45,000 borrowers who took out a loan in 2012 or later would realize a 75 basis point reduction in their rates.

“Even though interest rates are not rising a lot, we are at a point where most of the juice has been squeezed out of refi market,” said Daren Blomquist, senior vice president with Attom Data Solutions. “Even with a slight rise in interest rates, all of sudden you put the majority of homeowners in a place where it is not financially beneficial for them to refi.”  


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