Based on the extensive mortgage, real estate, and public records data sets that the company possesses, Intercontinental Exchange, Inc. has published its December 2024 ICE Mortgage Monitor Report.
In August and September of this year, the mortgage industry saw a welcome surge in refinance activity as 30-year conforming mortgage interest rates dropped into the low 6% level. In order to understand what that brief “boomlet” in borrowing activity tells us about U.S. mortgage holders and their intentions in the current market, this month’s Mortgage Monitor delves deeply into ICE Mortgage Trends closed loan data.
When the rate equation shifted in their favor, homeowners with loans that were generated during the last few years acted quickly, as explained by Andy Walden, ICE VP of Research and Analysis.
“Homeowners pounced on their incentive to refinance as rates fell through August and September,” Walden said. “More than 300K mortgage holders closed on refinance transactions in September and October, the most we’ve seen in two-and-a-half years. What’s more, almost half of that activity involved the homeowner refinancing into a better rate, with October marking the first time in three years that there were more rate/term than cash-out refinances in a given month.”
Key Finding from the December 2024 Mortgage Monitor:
- Borrowers took advantage of interest rates in the low 6% range, resulting in the closing of over 300,000 mortgage refinances in September and October, the largest in 2.5 years.
- Approximately 150K of those were rate/term refinances, and in October, for the first time in three years, rate/term volumes exceeded cash-out refinance volumes.
- In September and October, the typical rate/term borrower reduced their first lien rate by over one point and their monthly payment by $320, resulting in a total monthly savings of $47 million in those two months alone.
- More than 30% of rate/term activity was made up of mortgage holders refinancing out of and back into Veterans Administration (VA) loans, which represented more than four times the VA market share of all active mortgages.
- This year, loan-to-value ratios over 100% were used to originate over 35% of VA and over 10% of all rate/term refinances, raising the possibility of future performance risk.
Measuring Purchase, Cash-Out and Rate/Term Refinance Activity
With average closing times for all loan types—purchase, cash-out, and rate/term refinances—hitting their lowest October levels in the five years ICE has been tracking the statistic, ICE Market Trends data also demonstrated that technologically savvy lenders were prepared to satisfy that demand.
This is also translating into stronger retention rates, with servicers keeping more than a third of clients who refinance to increase their rate or term—the best in two and a half years, according to ICE McDash +NextLoan data, which records loans before and after a refinance or other prepayment. Retention was highest among individuals who had recently taken out their mortgages, approaching 40%, as has been the case in previous years.
“This brief, but welcome, spike in refinancing was dominated by homeowners quickly ditching their recently acquired mortgages,” said Walden. “Refinances out of 2023 and 2024 vintages drove an impressive 78% of recent rate/term lending and nearly half of refi activity overall. The average rate/term refinancer had been in their prior mortgage for just 15 months, the shortest average length of time in the nearly 20 years we’ve been tracking that metric. For most, this was a no brainer; on average, these folks cut their first lien rates by more than a point and their monthly mortgage payment by $320 per month. That works out to roughly $47M in monthly payment savings locked in by homeowners in just September and October alone.”
Nearly a third were able to improve their rate by 1.5 percentage points (pp) or more, and over two thirds of all rate/term refinances saw a rate drop of more than a full percentage point (pp). The biggest monthly improvements were experienced by borrowers with VA-backed mortgages, whose rates decreased by an average of 1.28 percentage points in October, while those of other loan types and investor classes decreased by 1.08 to 1.18 percentage points.
“As you’d expect,” Walden continued, “the interest rate threshold at which a given homeowner would be enticed to pull the trigger on a refi varied by loan size. Nearly half of refinancing borrowers with balances between $250K and $375K needed a 125 basis point (bps) reduction before deciding to refi. The distribution of rate savings for those with balances between $375K and $624K were largely similar. Once a borrower’s balance got above $750K, however, it was clear that less rate incentive was required for a refinance to be of value. Nearly 40% of those borrowers cut their first lien 75 bps or less by refinancing, and about 12% saw benefit in doing so even with less than a 50 bps reduction.”
About 30% of rate/term lending in September and October was made up of refinances from and back into VA mortgages, which is about four times the percentage of active mortgages. Performance risk must be taken into account in addition to the elevated prepayment risk that this entails. Loan-to-value ratios exceeding 100% have been seen in over 35% of 2024 VA rate/term refinances.
This results from a mix of lending programs that enable borrowers to fund closing expenses and even interest rate buydowns up to specific levels, as well as the refinancing of more recent vintages, which haven’t had time to strengthen their equity positions.
To read the full report, including more data, charts, and methodology, click here.
