The refinance share of mortgage originations increased to 35% in January, up from 29% in December to reach the highest level in nearly a year, Ellie Mae’s Origination Insight Report shows.
The increase is due in part to a drop in mortgage rates that came earlier in the month. That drop in mortgage rates led to a slight increase in the number of homeowners refinancing.
However, the increase in refinance share was also due to a major drop in purchase volume that began in December.
When purchase volume drops, refinance share increases. Therefore, an increase in refinance share is not always indicative of increasing refinance volume.
“The increase in refinances in January is likely due to seasonality with lower purchase volume tied to the holiday season as well a modest drop in rates from November and December,” explains Jonathan Corr, president and CEO of Ellie Mae, in a statement.
Federal Housing Administration refinances accounted for 21% of all refinances in January, up from 18% in December.
Conventional refinances accounted for 35% of all refinances, up from 31% the month prior.
Although the recent drop in mortgage rates has resulted in an increase in refinance share, that is expected to change as we move into the spring home buying season.
“We anticipate that as we move into the traditionally busier spring months, the percentage of home purchases will increase relative to refinances,” Corr says.
The report shows that the average time to close a mortgage loan (all types) dropped to 45 days in January, down from 47 days in December.
Time to close a purchase loan increased to 48 days, while time to close a refinance dropped to 38 days.
The closing rate for all loans increased to 75.0%, up from 71.4% in December and up from 70.9% in January 2018.
The closing rate for refinances increased to 69.5% while the closing rate for purchases increased to 78.1%.
The adjustable rate mortgage (ARM) share of activity was 8.6% in January, down from 9.2% in December.
The average FICO score for all closed loans in January was 724, down from 726 in December.
LTV decreased to 77 and DTI held at 26/39.
The report is based on origination data shared through Ellie Mae’s Encompass loan origination system.