As much as mortgage lenders may be wishing for another drink from the refinance well, the recent dip in interest rates isn't likely to spur a refi boom, or even a boomlet, anytime soon.
However, the rate drop, driven by concerns over the European economy and the Ebola crisis, did prompt the Mortgage Bankers Association to increase its refinance volume predictions for both 2015 and 2016.
Two credit unions in Northern California have seen an increase in refinance activity.
Vince Salinas, VP of home loans for $4.1 billion Patelco Credit Union, Pleasanton, Calif., said the rate dip translated into more applications and more fundings from the end of the third quarter to the start of the fourth quarter.
"We are seeing more jumbo loans, which is in line with our strategy that we started 18 months ago," he said. "We saw that was a niche market that was underserved and we could fill due to the strength of our balance sheet. These loans are doing very well for us."
As prices rebound for the higher-end homes in Patelco's service area, home owners now have equity and are able to refinance, Salinas said. "We are not seeing serial refinancers, who refi every six months, instead we are seeing the people who missed the last refi boom because they did not have equity at the time."
Salinas told Credit Union Journal most predictions he hears say interest rates may stay low through 2016. He believes there will be a "gradual rise" in mortgage rates going forward, and if there is a spike in rates, "that will have negative repercussions for housing finance. "
We will continue to see refis, especially on the high end, because people are getting their equity back and can refinance without mortgage insurance," he said.
Even with the improvement in refis, Patelco's mortgage mix is turning to purchase loans. The CU is doing more purchase mortgages than ever before, and Salinas said that trendline continues to climb every quarter.
"October typically is not a high purchase month, but last month we did the most purchases we have done in any month in our history. This is thanks to members and Realtors in the community having trust in Patelco to handle purchase transactions."
Ron Felder, EVP and chief lending officer for $2.4 billion Redwood Credit Union, Santa Rosa, Calif., said his CU saw a 68% increase in mortgage refinance applications in October over September. Its overall home loan applications — including purchase applications — increased 44%.
"We feel this was largely driven by the drop in treasury rates below 3% in mid-October and corresponding decrease in 30-year mortgage rates to their lowest level since May 2013," he assessed.
Felder said while it is difficult to predict whether the refi trend will continue, Redwood CU expects application volumes will remain "closely tied" to the treasury rate activity. "And if rates dip lower, applications will continue to increase as people try to lock in the most affordable rate for their purchase or refinance. Our goal is always to help our members find the right solutions for their unique needs, so regardless of fluctuations in the market, we will continue to listen to our members and provide them with options that will help them get the best value in a home loan."
There is one segment of borrowers that is a prime target for refinance leads, said Jim Blatt, CEO of Mortgage Returns, a customer-relationship management technology vendor in St. Louis.
While there's a "nice opportunity" to refi borrowers currently in conventional mortgages, "the better opportunity for a refi is much more complicated. And that is finding opportunities to refi a Federal Housing Administration loan into a conventional loan with private mortgage insurance," Blatt said.
It might take some work, he noted, including getting the balance of the note, estimating what the FHA premium is and then calculating what the private MI premium will be. Plus, the borrower's credit score has to be taken into account.
The goal is the help lenders evaluate "what can they capitalize on from my database," Blatt said. Mortgage Returns is performing the calculations to help lenders identify their past clients that might benefit, and despite the extra effort, the opportunity can have an immediate impact and help originators while the shift to a purchase-driven market becomes more established.
Based on the company's own analysis of 500,000 FHA loans closed in the last five years, 48% of borrowers have an opportunity to save at least $78 a month even though the interest rate on the new loan was on average 12.5 basis points higher. The savings comes from the lower mortgage insurance premium.
"So you also have to educate the consumers that rate isn't everything. That traditional mortgage message of rates are at historic lows won't work for this," Blatt said. But there is the chance to lower the borrower's monthly payment and put them into a better financial position.
Another selling point is that private MI is automatically cancellable when the mortgage is paid down to a 78% loan-to-value ratio, whereas FHA insurance is for the life loan.
The biggest benefit is that the marketing approach shows the client that the loan officer is "a true mortgage professional," someone looking out for their best interests, he added.
The sudden jolt in activity may be just enough of an excuse for lenders to procrastinate on preparing for the new integrated mortgage disclosure forms that will replace the Good Faith Estimate and HUD-1 in August 2015, said Stan Middleman, CEO of Mount Laurel, N.J.-based Freedom Mortgage.
"With interest rates where they are, I don't think anybody is looking to upset their apple cart. I think you are seeing people want to stay the course and are pushing off the inevitable to some inevitable point," Middleman said.
But the veteran mortgage executive was cautious when it came to predicting where interest rates are headed. "Don't make any bets on my projections on interest rates because I am never right. I am entering my 12th consecutive year of calling for higher interest rates and I have not been correct yet," he said.
The ability to project how rates will change is difficult because, "we have evolved into a world village," Middleman said, where events abroad have a much greater influence on domestic financial markets than they have in the past.
Industry observers, most notably, Freddie Mac, said the refi boom officially ended earlier this year. But the recent uptick in activity had some banks talking about the prospects of a refi boomlet in their third-quarter earnings.
However, it takes more than a week of low rates to make a trend, said Ruth Lee, executive vice president at Denver-based Titan Lenders Corp. "But it does seem to indicate there is a new normal in the rate environment," she said. "A lot of people thought that the bottom was there, and to find a new bottom is a little surprising."
Titan's president and CEO, Mary Kladde, called the decline "an October event," noting that the same thing happened one year ago. "October seems to be the month of crashes," she added, referring to the Stock Market Crash of 1929.
Several industry experts, most notably Barry Habib, the CEO of consulting firm MBS Highway, subscribe to the theory that when stock prices decline, investors' money moves into bonds and as a result bond yields decline, which in turn drives down mortgage rates.
The recent rate drop was influenced by the stock market gyrations the week before the MBA Annual Convention, but to blame things like the death of the first Ebola patient in the U.S. for what happened to rates is "a little simplistic to be true," Lee said.
On the other hand, "It wouldn't hurt my feelings if there were people who were fence-sitters who decided to take this as the opportunity to move. But, is this production that wasn't going to happen eventually over the course of the next 12 months? I don't know," Lee said.
What happened in the bond market was a blip and would not make a sustainable refinance boom, added Rick Seehausen, the CEO of LenderLive Network, another outsource services provider based in Denver.
But the expanded loan criteria rolled out during the convention by various secondary market participants should bring some consumers who previously weren't eligible to refinance mortgages — as well as purchase loans — back into the market, Seehausen said.
Meanwhile, the new home purchase business has been improving in recent months according to another service provider.
Coester VMS, a Rockville, Md.-based AMC, does appraisal work for several of the larger home builders with affiliated mortgage companies. Overall, "their business has increased dramatically" this year to the point where they are "slammed," said CEO Brian Coester.
One builder is seeing a 30% year-over-year increase in units being built, he said, which is in turn leading to more work for Coester VMS.
Looking further into the future, Coester expects to see the mortgage industry increase its adoption of technology to ease the process in the next five years than it has the previous 25 years.
That's good for compliance, regulation and even for lenders' businesses, because it will lower the cost to the consumer for a mortgage, he said.
"The mortgage industry has always been kind of shy about technology. It is something that needs to happen. The millennial generation is online, they are all hyper-price competitive. They are all intelligent about it," Coester said.
Still, the mood regarding the overall origination market among many in the industry was perhaps best summed up by LRES's Beane: "Hello 2015; thank God 2014 is behind us," he said, calling the current year "a real grind."
