Although refi volumes remain at a fraction of historical levels, there have been some notable shifts in who is taking out refis in today’s market, ICE Mortgage Technology’s most recent Mortgage Monitor report shows.
For example, there has been a recent rise in VA market share, from less than 10% of rate/term refis a year ago to more than 30% in recent weeks, according to the firm’s origination data.
The rise in VA refinance share seems to be due, in large part, to streamline refinances, ICE says. Some veterans, especially those who had taken out mortgages within the past year, availed themselves of the streamlined refinancing program to lower their interest rate by more than a full percentage point, for an average savings of $230 per month among April originations, according to a before-and-after analysis of ICE McDash +Property data.
That makes sense, considering the ICE U.S. VA 30-Year fixed rate mortgage index is down nearly a full percentage point from its peak in late October, with the average rate offering among such loans notably below that of FHA and conforming mortgage counterparts.
VA refinances also helped improve the servicing retention rate in the first quarter to its highest level in 18 months, with retention of FHA and VA refinances tripling from 15% in the fourth quarter to 46% in the first quarter.
Those lower payments come at a cost, however, as the average borrower increased their loan balance to buy down their rate and/or finance closing costs. The quick turn also resulted in unusually high prepay speeds, which can negatively impact investors in VA loan backed securities.
The recent activity among VA loans supports the findings of the recently released 2024 ICE Borrower Insights Survey, which shows that finding the lowest mortgage rate trumped all other concerns when choosing a lender, with a 20-point delta between that and the next most frequent choice.
But, while borrowers want the lowest rate, they typically don’t consider many options.
In fact, 84% of borrowers surveyed considered only one (36%) or two (48%) options before selecting a lender. This, as well as the successful proactive retention of FHA/VA borrowers in the first quarter, shows how important it is for lenders to stay attuned to their borrowers’ needs and make first contact when a beneficial refi opportunity arises.
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