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MBA economist: Less refinances on horizon

While low rates have led some to predict a refinance boom, Mike Fratantoni, chief economist for the Mortgage Bankers Association (MBA), isn’t among the chorus.

RefinanceFratantoni, speaking at MBA’s National Secondary Market Conference in New York, granted that the rate drop following last year’s mounting hikes was undoubtedly positive for buyers. Any effects on refinance volume, however, have been less pronounced.

The reason? There just isn’t as much refinance opportunities to be had out there.

In the past, Fratantoni explained, mortgage rates have been fairly widespread. In the current decade, however, they have generally stayed between 3.5 and 4.5 percent. Refinances of previous mortgages have further clustered most existing loans within that range, limiting the pool of borrowers with incentive to refinance.

“It’s structurally a different mortgage market than we've seen in the past,” Fratantoni said. "That long period of refi activity concentrated the entire market into a narrow band.”

Fratantoni’s observations are corroborated by recent numbers from the Federal Housing Finance Agency (FHFA), which reported that Fannie Mae and Freddie Mac completed just 234,716 refinances in 2019’s first quarter. That’s the smallest amount of refinances for a quarter since the Great Recession. Before that, the 245,619 loans refinanced in the fourth quarter of 2018 were also a post-downturn low.

Compare those numbers to the figures in the first quarter of 2017, when Fannie and Freddie refinanced 510,075 loans, or the fourth quarter of 2016, when the GSEs saw 510,075 refinances.

Fratantoni did say that there is opportunity for “little boomlets when rates drop.” In fact, per the FHFA, March saw total refinance volume increased as the average interest rate on a 30-year fixed rate mortgage fell 0.10 of a percentage point to 4.27 percent.  


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