Refi rate-locks fell to January 2018 low in April

Refinance rate-locks fell to their lowest point since January 2018 during April, in line with similar application trends but purchase activity was relatively strong, according to Black Knight.

The refi share of locks fell to 20% from 28% the month before as rates rose. Purchase locks dropped 11% from a month earlier but matched year-ago levels.

“While purchase locks were down somewhat from March, they remained flat from last April, reflecting consistent and resilient demand from homebuyers,” said Scott Happ, president, Optimal Blue, a division of Black Knight, in a press release.

The share of loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs was 21.3%. Conforming loans had a 59.7% share. The respective shares of conforming and FHA/VA loans in March were 20.5% and 60.9%.

The trend is notable because lock activity doesn’t always mirror applications, particularly when pull-through rates are relatively low. The share of applications that result in funded loans has been dropping, particularly for refis, which had a 62.7% pull-through rate in April.

The numbers also show that although FHA and VA loan applications have been falling, they are comprising a higher proportion of mortgages in the market.

Borrowers typically refinance into conforming loans from FHA and VA mortgages if possible, because the first category is generally the most attractively priced, but the latter two categories can help first-time buyers with limited means qualify for loans.

But home affordability and the ability to qualify have been under strain recently due to both high rates, and supply constraints that have put upward pressure on home prices. 

So because refinancing opportunities are diminishing, and affordability is becoming more of a hurdle, FHA and VA programs are gaining some traction in terms of market share even though volumes overall are falling.

“When the refi boom is heavier, most people are moving to conventional from FHA and VA loans,” said Caleb Mittelstet, executive vice president, national production, distributed retail sales, at Planet Home Lending, in an interview. “Now that we’re back into a purchase market with rising values, this is what you’re going to see.”