Purchase Money Mortgages Benefit From Higher Interest Rates As Origination Of Mortgage Refinance Dry Up

The half-point increase in mortgage interest rates since January has all but killed mortgage refinance. Purchase Money Mortgages now outnumber mortgage refinance loans by a 3:1 margin.

It also appears mortgage refinance sector will be dead for a while.  

Ellie Mae just published it’s Origination Insight Report and it doesn’t look good for originators specializing in refinance mortgages. The report shows that the 71% of all loans closed in July were purchase loans. Only 29% of closed loans were mortgage refinance loans

This the second month in a row that mortgage refinances made up under 30% of the loans originated.

Those figures also represent the lowest percentage of refinance mortgages since Ellie Mae began tracking this data in 2011. This is also the highest number of origination of purchase money mortgages since 2011.

The Disproportion Of Purchase Money Mortgages And Refinance Mortgages Isn’t Ending Anytime Soon

Ellie Mae’s report shows mortgage refinance transactions made up 45% of all originations in January. Mortgage rates were in the low 4% range. Refinance transactions have dropped as interest rates have risen to 4.5%

Ellie Mae’s report states that refinance transactions have dropped from 45% in January, to 43% in February. They dropped to 38% in March and to 34% in April and finally dropping to 29% in both June and July.

The drop is seen most dramatically in conventional loans. especially FHA and VA loans.

For FHA loans, the refi share fell from 28% in January to just 19% in July. In VA lending, the refi share dropped from 34% to 25%.

Ellie Mae Jonathan Corr says the trend here for a while:

The purchase market remained solid in July and as we see inventories rise. We might begin to see a transition to a buyer’s market. The summer home buying season is still in full swing and while interest rates have risen, we expect to see a continued increase in purchase percentages.

There was a little bit of good news for the refinance sector. A Mortgage Bankers Association survey shows the refinance share of mortgage application activity increased from 36.6% to 37.6% last week.

But that may just be a blip on the radar as interest rates are expected to continue climbing this year.