My how things can change in the blink of an eye! One day, nearly 70% of all mortgages originated in the United States were refinance and the next only 40% are purchases. In fact, just 1 year ago in October of 2012 only 31% of all mortgages across the United States were purchase loans. The remaining 69% were refinances. Ellie Mae, a company that tracks such data just released a report showing that 60% of all loans originated in October of 2013 were purchase loans. Quite a flip-flop in just 12 months!
Why the change in refinance mortgage activity?
When refinancing activity decreases it is directly related to a rise in mortgage rates. Since June of 2013, Arizona mortgage rates have steadily increased from their anemic historical lows early on in the year. However, adding to the decrease is the fact that consumers are feeling some hesitation relative to the market. This is a tougher stat to track however as an originator I have seen several clients decide to put their refinance application on hold simply due to their general uneasiness about the market and the economy.
While you might think that folks feeling uncertainty related to our economic future would lead to them having a greater desire to refinance and save, the uneasiness often has the opposite impact. It can inspire the “deer in the headlights” syndrome. Homeowners sometimes take the “when you don’t know what to do nothing” path and wait for things to settle before committing to a large financial transaction such as a refinance.
Lenders Who Focus on Purchases Transition Well
For the most part there are 2 different types of Arizona mortgage lenders. One type focusses on referral and purchase based business while the other relies heavily upon refinance business. A refinance and a purchase loan are 2 very different animals and the lenders that focus on each are just as different. The processes associated with a refinance and a purchase are very different. Lenders who have well-developed purchased based processes and communication systems will transition easily as the market itself transitions. Mortgage lenders that have focus on refinances on the other hand will not make the switch so easily.
When involved in a purchase transaction a lender should be communicating with 4 different parties. They should be keeping everyone up to speed with regard to overall loan status. A refinance on the other hand involves one primary individual – the home buyer. A refinance is also void of any binding purchase contracts. Therefore, a refinance does not have a contractual closing date that if missed can have serious repercussions on the borrower.
Going forward, expect to see the share of purchase loans increase steadily. I can tell you that 100% of our business this month is purchase business. The increase to a 100% purchase pipeline from our normal 70% or 80% purchase pipeline is a noticeable shift and one that The HOUSE Team welcomes!
By Jeremy House