Mortgage Originations, Refinancings Surged In Second Quarter Amid Low Rate Backdrop


  • In all of 2019, lenders extended about $2.5 trillion in home loans
  • Mortgage rates fell below 3% for the first time in July.
  • Only 18% of all refinancing borrowers retained post-refinance in the second quarter

Mortgage originations set a record in terms of volume in the second quarter despite the ongoing COVID-19 pandemic, data analytics firm Black Knight reported.

First lien mortgage origination volumes approached $1.1 trillion in the quarter – an all-time record. In all of 2019, lenders extended about $2.5 trillion in home loans.

“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 of 2020], driven by the record-low interest rate environment,” Black Knight Data & Analytics President Ben Graboske said. “Nearly $1.1 trillion in first lien mortgages were originated in [the second quarter of 2020], which is the largest quarterly origination volume we’ve seen since first reporting on the metric in January 2000.”

Indeed, mortgage rates have been steadily dropping – they fell below 3% for the first time in July.

Refinance lending, Graboske added, grew by more than 60% from the first quarter of 2020 and by more than 200% from the second quarter of 2019, accounting for nearly 70% of all second quarter 2020 originations by dollar value.

Greg McBride, chief financial analyst at, told International Business Times, refinancing volumes also were propelled by record low mortgage rates.

“The ability [of] homeowners to trim their monthly payments by $150, $200 or more per month is meaningful breathing room in tight household budgets,” he said. “This is money that households can use to boost savings or pay down debt and that will eventually make its way back into higher consumer spending.”

In addition to low mortgage rates, McBride noted, homebuying activity is strong because of “pent-up demand from the spring buying season that wasn’t and move-up buyers [buyers who currently own a home, but seeks to purchase a bigger or more expensive property] that realized after being sheltered in place for two months that their current set-up just isn’t working.”

Add in the prospect of working from home permanently and there has been a flight from high-cost city centers to more affordable suburbs or out-of-state locations, McBride added.

Graboske of Black Knight noted that purchase lending declined by 8% year-over-year in the second quarter as the traditional spring homebuying season was impacted by COVID-19-related restrictions.

“However, mortgage loan rate lock data – a leading indicator of lending activity – suggests that the homebuying season was simply pushed forward into the third quarter,” he noted. “Purchase locks in [the third quarter of 2020] have already made up for the losses of a COVID-impacted [second quarter] – and then some – based upon normal seasonal expectations.”

In fact, Graboske indicated, rate locks suggest the mortgage market could see third quarter purchase lending break typical seasonal trends and rise by 30%-40%, which would push it to a record high.

“Likewise, while [second quarter] refinance activity was record-breaking, refi lock data suggest [third quarter] refinance volumes could climb even higher,” Graboske noted. “Locks on refinance loans expected to close in the third quarter — assuming a 45-day lock-to-close timeline — are already up 20% from [the second quarter].”

Given market conditions as well as the recently announced postponement by the Federal Housing Finance Agency of the 50 basis points fee on government-sponsored enterprise refinances until December, Black Knight expects near-record low interest rates to continue to buoy the market.

“After all, there are still nearly 18 million homeowners with good credit and at least 20% equity who stand to cut at least 0.75% off their current first lien rate by refinancing,” Graboske stated.

Black Knight’s data also revealed homeowners are abandoning their lenders or servicers in droves.

Only 18% of all refinancing borrowers retained post-refinance in the second quarter – meaning the mortgage servicers are having difficulties in retaining their customers.

“Despite a nearly 17-year high in refinance originations, the business of [only] 22% of rate/term borrowers and a mere 13% of cash-out refinance borrowers was retained in servicers’ portfolios post-transaction,” Black Knight said. “While that is a marked improvement for rate/term refinance retention rates since last quarter, it still results in servicers losing nearly 80% of their refinancing customers.”

When mortgages get paid off through refinancing, a servicer’s portfolio can shrink significantly in a short period of time, McBride said.

“But actively buying the servicing rights on newly issued loans can mitigate that loss,” he added.

Still, not everyone is impressed with this surge in mortgage originations.

“This boom in mortgage originations isn’t necessarily going to be that awesome for the broader economy,” Ralph McLaughlin, chief economist at home finance startup Haus, told the Wall Street Journal. “There is less of a multiplier effect in the economy when somebody refinances versus buying a house.”

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