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'Refinanceable' population swells to record high

The “refinanceable” population — the number of borrowers who could likely qualify for a refinance and save at least 75 basis points off their current loan by doing so — is the largest it has ever been, according to Black Knight's latest Mortgage Monitor report.

RefinanceWith Freddie Mac’s average 30-year interest rate dropping to 3.49% last week, more than half of all homeowners with a 30-year mortgage — some 24.5 million people — now have a rate at least 75 basis points above the current rate. That’s the largest number since early 2013.

Among those homeowners, 11.7 million also meet general underwriting criteria — including a credit score of 720 or higher, a loan-to-value ratio of 80% or less and current standing on their loan payments. It’s this subset of “high-quality” refinance candidates that Black Knight deems “refinanceable,” and their number is at its highest point since Black Knight began tracking the metric in 2000.

With rates continuing to propagate that population, easy access to refinance candidates has helped servicer retention rates — the share of borrowers retained by mortgage-servicing companies through a refinance transaction — grow significantly in second-quarter 2019. Servicers retained 24% of all refinancing borrowers during the past quarter, the highest rate since late 2017. Compare that to as recently as last year, when servicer retention rates fell to their lowest points in a decade.

Moreover, servicers retained 30% of all rate-and-term refinance borrowers, in line with historical trends of higher retention rates for rate-and-term refinances than other types of refis, such as cash-out loans. Ben Graboske, Black Knight's president of data and analytics, said that although “losing the business of more than two out of every three rate-driven refinance customers is not exactly extraordinary performance, it is significantly better than the sub-20% retention rates seen throughout much of 2018.

“The good news is that interest rates are at three-year lows, and anecdotal evidence suggests that in recent weeks, mortgage lenders had been inundated with inbound refinance business that’s relatively easy to retain,” Graboske added. “Borrowers refinancing out of 2018 vintage mortgages — a group accounting for nearly 20% of all refinance transactions over the first half of 2019 — have been especially so. Some 35% of these borrowers were retained by their servicers post-refinance. Given that 17% of the 11.7 million current refinance candidates are in 2018 vintage loans, retaining their business should be a top priority given today’s market make-up.”

The “not-so-good news,” per Graboske, involves cash-out borrowers. Servicing companies are retaining only one in five such borrowers, a disappointing number at a time when interest rates hover so low and tappable equity is at record levels. And despite the upswing of rate-and-term refis, cash-out transactions still accounted for about 62% of second-quarter 2019 refinances, leaving a broad group of borrowers that shrewd lenders can leverage.

“Add to that the fact that borrowers refinancing out of 2012-2017 vintage loans account for nearly half of all refis so far in 2019, [and] nearly 80% were cash-out transactions,” Graboske added. “Savvy lenders and servicers need to go beyond the low-hanging fruit of 2018 vintage loans in order to retain this business — and capture additional market share where others are missing out. The key to success is being able to identify and target these customers through an informed, data-driven growth and retention strategy.”


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