Origination Volume Quickly Bounced Back from COVID

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The COVID-19 crisis ravaged a majority of U.S. industries during the second quarter, resulting in a peak unemployment rate of nearly 14% in April, but despite the economic fallout, the mortgage market performed surprisingly well.

With record-low mortgage rates, origination volume surged during the second quarter, more than offsetting the losses incurred due to the initial onslaught of the pandemic late in the first quarter, data from Black Knight shows.

In fact, the second quarter saw the largest quarterly volume on record, with nearly $1.1 trillion in first-lien mortgages originated, according to the firm’s latest Mortgage Monitor report.

And things could get even better: Purchase locks thus far in the third quarter are up about 23% compared with the seasonal expectation – more than making up for the second quarter’s COVID-19-related shortfall.

“Despite the nation being under pandemic-related lockdowns for much of the quarter, a record-breaking surge in mortgage originations occurred in the second quarter, driven by the record-low interest rate environment,” says Ben Graboske, president of the data and analytics devision for Black Knight, in the report. “Nearly $1.1 trillion in first lien mortgages were originated in the second quarter, which is the largest quarterly origination volume we’ve seen since first reporting on the metric in January 2000.”

Refinance lending grew more than 60% from the previous quarter and was up more than 200% compared with the second quarter of 2019.

Refinances accounted for nearly 70% of all second quarter originations by dollar value, according to Black Knight’s data.

Graboske says although refinance activity in the second quarter was “record-breaking, refi lock data suggests third quarter refinance volumes could climb even higher.”

“Locks on refinance loans expected to close in the third quarter, assuming a 45-day lock-to-close timeline, are already up 20 percent from the second quarter,” he says. “With market conditions as they are – and given the recent delay of the 50 basis points fee on GSE refinances until December – we would expect near-record low interest rates to continue to buoy the market.”

The report also looks at mortgage servicer retention rates, which continue to be woefully low despite the robust refinance market. Just 18% of all refinancing borrowers were retained post-refinance in the second quarter, despite a nearly 17-year high in refinance originations.

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