Mortgage lock volume keeps sliding even with lower rates

The decline in rate lock activity in November cannot be explained away by normal seasonality, because borrowers are still dealing with affordability concerns, Black Knight said.

Overall rate lock volume was down 21.5% from October and 67.8% compared with November 2021. Even though conforming mortgage rates ended November 48 basis points lower than October, they were still 331 basis points higher than one year prior, according to data from Black Knight Optimal Blue’s product and pricing engine.

Since the end of the month, mortgage rates have continued to fall further, down 0.75 percentage points in four weeks as of Dec. 8, according to Freddie Mac.

Besides the seasonal pullback in activity in November, affordability is putting a major strain on purchase activity and refinancings have dwindled to practically nonexistent levels, said Scott Happ, president of Optimal Blue, a division of Black Knight. 

“This dynamic’s only been exacerbated by recent cutbacks in new home construction and the ongoing existing home listing inventory shortage,” Happ said in a press release. “And, even with a half a point pull back in conforming 30-year rates in November, stalled inventory and rates nearly twice what they were a year ago both serve as counteracting forces, somewhat negating recent home price declines from an affordability perspective.”

Lock activity declined across all three loan purposes, with the largest month-to-month drop off in purchase volume, which fell by 22.1% from October and 50.2% compared with November 2021. Over the same time frame, cash-out refis were down 18.4% and 86.3%, while rate-and-term refinance activity was off by 17.1% and 93.2%.
Optimal Blue’s Market Volume Index, set to 100 for January 2018, for rate-and-term refis was just 3 for November. Cash-out was only marginally higher at 8, while for purchase it was 66.

Lock activity is just one-third of what it was one year ago, with the total MVI at 77 compared with 240 in November 2021.

The refinance share of rate locks for November was 15%, down over 30 percentage points from one year prior.

All investor types except nonconforming mortgages gained share in November from the prior month. Conforming mortgages made up 57.5% of rate locks up 99 basis points from October, but down 841 basis points from one year prior.

Nonconforming locks had a 12.3% share, down by 206 basis points month-to-month and 207 basis points year-over-year.

Federal Housing Administration-insured mortgages were up 91 basis points from October and 837 basis points over November 2021 to an 18.9% share, while Veterans Affairs-guaranteed locks made up 10.5%, up 10 basis points and 207 basis points respectively. The remaining 0.8% of rate locks were for U.S. Department of Agriculture Rural Housing Service loans, slightly higher versus the comparative periods.

But pull-through, the measure of applications that actually close, continue to suffer even with falling interest rates. Purchases had a 70.3% rate, down 560 basis points from October and 1,198 basis points from one-year prior. For refis, the rate was 51.3%, down 608 basis points from the previous month and 2,214 basis points versus November 2021.

The decline in interest rates did result in a drop off in adjustable rate mortgage locks, which fell to a 10% share from October’s 13%.