Amid rising borrowing costs, constrained inventory and souring consumer outlooks last month, new borrowers remained active in April, pushing purchase mortgage rate-lock volumes 9% higher than year-ago levels.
Inversely, refinance volumes declined sharply in April as higher mortgage rates limited monthly payment savings for prospective refinance candidates. The pivot pushed mortgage rate-lock volumes 9% lower than March, though they remained 11% higher over the year.
After increasing to 44% of total mortgage production in the first quarter, according to ICE Mortgage Technology, refinance share slipped to 23% of total volumes in April, says Optimal Blue, which published its monthly report of mortgage rate-lock activity on Tuesday.
“April looks more like a cooling from a strong first quarter than a real weakening in borrower demand,” said Mike Vough, head of corporate strategy for the hedging and market intelligence platform.
Rate-and-term refinance rate-lock volumes ultimately fell 38% over the month but remained more than 22% higher from a year ago, while cash-out refinances declined 12% on the month and rose 11% over the year.
In remarks accompanying April’s origination report, Vough also flagged how the purchase-refinance production split “reinforces how rate-sensitive borrowers remain, even as the spring purchase market continues to show resilience.”
By channel, conforming mortgage originations that satisfy Fannie Mae and Freddie Mac underwriting guidelines slipped below the 50% threshold for total lock volumes last month — the first time this has occurred since Optimal Blue began tracking the metric. The 49.9% conforming share of total rate locks in April reflects a slight decline from March’s 50.3% mark.
The government-sponsored enterprises have lost market share over the past several years, driven in large measure by the maturation of private lending and non-qualified mortgage (non-QM) programs, experts say. Nonconforming or non-QM share of rate-lock volumes was 17.2% in April, a decrease of 67 basis points from March but 85 points higher than year-ago levels.
Drilling down, investor-purpose loans commonly reported in non-QM totals fell to 29.8% of nonconforming market share in April, down about 250 basis points over the month but about 220 basis points higher than a year ago. Bank statement rate-lock volumes rose from 33.4% in March to 33.9% in April, down 314 basis points over the prior three months but just 15 points lower annually.
Purchase affordability barriers such as elevated downpayment requirements have also shifted origination share away from Fannie and Freddie to government pipelines with more low-downpayment programs.
Lock volumes for loans insured by the Federal Housing Administration (FHA) totaled 18.8% in April, up from 18.5% in March but roughly 140 basis points lower than a year ago. Rate-lock share for loans backed by the Department of Veterans Affairs (VA) were 13.3%, up from 12.6% in March.
As lock-in effects remain well entrenched, with millions of mortgaged households sitting on pandemic-era first-lien mortgage rates under 4%, first-time homebuyers continue to represent an outsized share of purchase demand, according to Optimal Blue.
First-time buyers comprised 47% of conforming purchase rate locks last month, up 3% over the year, compared to 70% of FHA purchase lock volumes in April and 45% of VA purchase locks.
Mortgage servicing rights valuations also climbed in accordance with higher mortgage rates and diminishing refinance expectations, said Optimal Blue, as the Iran war raises the floor for mortgage borrowing costs for the foreseeable future, experts predict.
