Boston Condos for Sale 2022

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Mortgages the New Ticking Time Bomb

Mortgage lending took a nose dive across the U.S. in the first quarter of 2022, according to a new report from ATTOM

Secured mortgages fell 18% from the fourth quarter of 2021 and were down 32% from the same time last year — the biggest year-over-year drop since 2014. This marked the fourth quarterly decrease, which the data management company said was the result of “double-digit downturns in purchase and refinance activity, even as home-equity lending rose.”

Along with the 32% decline in residential mortgages, the report found the number of new loans fell for the fourth straight quarter, meanwhile refinance lending fell another 22% and purchase mortgages were down 18%.

In the first quarter of the year $892.4 billion worth of mortgages were issued, a quarterly drop of 17% and down 27% annually. The report notes these decreases were the largest in five and eight years, respectively.

A decrease in refinance deals was the biggest contributor to the downturn as only 1.5 million residential loans were rolled into new mortgages in the first quarter, down 22% from the fourth quarter of 2021 and 46% from last year.

Additionally, refinance mortgages fell for the fourth quarter in a row due to rising mortgage interest rates. The dollar value of these refinance loans fell 20% from the previous quarter and 42% from last year to $470.7 billion.

Rick Sharga, executive vice president of market intelligence at ATTOM, said the drop-off in first quarter refinancing activity is no surprise with mortgage rates rising as rapidly as they have.

“But many forecasts expected purchase loans to remain strong in 2022, and even increase in both the number of loans originated and the dollar volume of those loans,” he said. “The weakness in purchase loan activity shows just how much of an impact the combination of escalating home prices and rising interest rates have had on borrower activity this year.”

Purchase-loan activity also fell in the first quarter, down 18% quarterly and 12% from last year.

Updated: Boston Real Estate Blog 2022

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Key points

  • The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances remained unchanged at 3.03%.
  • Applications to refinance a home loan fell 3% for the week and were 4% lower than a year ago.
  • Purchase application volume was 18% lower than the same week one year ago

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Daniel Acker | Bloomberg | Getty Images

Mortgage rates appear to be stuck in a holding pattern, giving borrowers no particular incentive to act, especially on refinances. Total mortgage application volume fell 1.9% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. It was at the lowest level since last July.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) remained unchanged at 3.03%, with points decreasing to 0.33 from 0.34 (including the origination fee) for loans with a 20% down payment.

“Refinance volume has been moderating, while purchase volume continues to be lower than expected given the lack of homes on the market,” said Mike Fratantoni, MBA’s chief economist. “Economic data has sent mixed signals, with slower job growth but a further drop in the unemployment rate in August. We expect that further improvements will lead to a tapering of Fed MBS purchases by the end of the year, which should put some upward pressure on mortgage rates.”

Applications to refinance a home loan fell 3% for the week and were 4% lower than a year ago. Mortgage rates were almost exactly the same at this time last year, but they were lower at the start of this year, and there was a refinance boomlet at the time. There is a dwindling number of borrowers who can now benefit from a refinance.

Mortgage applications to purchase a home were basically flat last week, falling 0.2% from one week earlier. Purchase application volume was 18% lower than the same week one year ago. Homebuyers today are seeing more listings, but prices are still rising at a record rate, and some are simply priced out of the market.

After last week’s employment report, there is no significant economic data expected soon that would affect interest rates dramatically.

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In every great action movie, there’s a ticking-time-bomb element. If mortgage lending were an action movie, then rates are the time bomb. Since there’s no telling when rates will rise again, each week borrowers are either granted another chance to lock in a new low rate or the bomb blows and rates rise, destroying the big savings opportunity.  

Rates fell again this week, so would-be mortgage borrowers can breathe a sigh of relief. But refinancers have another countdown element to contend with—the new Adverse Market Refinance Fee that begins on Dec. 1. 

The Federal Housing Finance Agency (FHFA) will add this fee to most refinances that are sold to Fannie Mae and Freddie Mac (which account for about 70% of all mortgages). 

The fee will add half a percentage point cost to the loan. So if you refinance into a $200,000 mortgage, then the fee would be $1,000. It’s unclear yet how lenders will pass this fee on to borrowers. Some might include the new cost in the interest rate while others might add it to the closing costs.

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Updated: Boston Real Estate 2021