“The concentration of active loans just below 7% has more to do with borrower psychology than concrete savings,” Walden said. “There’s clearly something appealing in today’s market for a homeowner to see a 6-handle in front of their mortgage rate.”
Despite the current low refinancing volumes, there have been shifts in who is refinancing. Notably, the share of VA loan refinances has increased from less than 10% of rate/term refinances a year ago to more than 30% in recent weeks, according to ICE origination data. This rise is largely due to streamlined refinances, which have allowed veterans to lower their interest rates by more than a full percentage point, resulting in average monthly savings of $230 among April originations.
The VA 30-year fixed rate mortgage index is down nearly a full percentage point from its peak in late October, making VA loans more attractive compared to FHA and conforming mortgage counterparts. VA refinances have also improved the servicing retention rate, which reached its highest level in 18 months in Q1, with retention of FHA and VA refinances tripling from 15% in Q4 to 46% in Q1.
However, these lower payments come at a cost, as borrowers often increase their loan balances to buy down rates or finance closing costs. This quick refinancing activity has led to unusually high prepayment speeds, negatively impacting investors in VA loan-backed securities.
The recent trends in VA loans align with the findings of the 2024 ICE Borrower Insights Survey, which revealed that finding the lowest mortgage rate was the top priority for borrowers when choosing a lender.
Source: mpamag.com