Mortgage rate locks keep falling as borrowers hesitate

Mortgage rate lock activity declined for the third consecutive month in June as rising interest rates continued to suppress consumer appetites for purchase and refinance transactions, Black Knight found.

Rate locks fell by 11.1% from May when measured by the unpaid principal balance sought, which masked the true depth of the decline. Purchase lock counts by units — a measure which takes out the effects of record home price appreciation — declined 21% from the prior month.

Purchase mortgage applications made up 82% of rate locks in June. However, while this is a month when many spring homebuyers apply for loans, purchase locks by UPB were down by 10.8% compared with May and down 15.6% from June 2021.

“With 30-year rates hovering below 6% — still historically low  — we’ve seen the rate/term refi market dwindle to next to nothing, with increasing downward pressure on cash-out activity,” said Scott Happ, president of Optimal Blue, a division of Black Knight, in a press release. “Eventually, equilibrium will return; but, as of June, the market seems to be having trouble adjusting to a rate environment anywhere above the historically low levels reached during the pandemic.”

The most recent Freddie Mac Primary Mortgage Market Survey reported a 5.3% rate for the 30-year conforming mortgage, down a total of 50 basis points over the prior two weeks.

Still, higher rates have affected pull-through activity — locks that actually end in a closed mortgage. Lower pull-through impacted lenders’ revenue and cost structure, which affected nonbank profitability in the first quarter, the Mortgage Bankers Association previously reported.

For all forms of refinancing, pull-through rates dropped dramatically in June compared with prior periods. Approximately 56% of refi rate locks ended up closing, down 288 bps from May, but down over 14 percentage points compared with June 2021.

Purchases have a much better pull-through rate at 78.7% in June, up 124 bps compared with May, but down 126 bps from one year ago.

Rate-and-term refinancing locks declined 9.1% from May but that was from a very low level, as they were down 65% from March and 90.4% from June 2021.

Meanwhile cash-out refis, which are typically driven by a homeowner’s need for liquidity, saw 13% fewer rate locks in June compared with May and over 54% fewer versus both March and June 2021.

At the same time, average credit scores for cash-out borrowers fell another 5 points between May and June. They were down 2 points from March and 35 points from one year ago.

The average credit score for locked purchase applications declined 2 points on a month-to-month basis and dropped one point from last June, showing that these have held steady for the past 12 months.

Rate-and-term refi applicant credit scores increased 3 points from May and 2 points from June 2021.
Meanwhile, the share of conforming loan rate locks continued to shrink, falling to 57.2% in June, compared with 59% in May and 65% one year ago.

Nonconforming volume increased a scant 8 basis points from May to 16.4%, although it was up 4 percentage points from the year prior.

The Federal Housing Administration program received 15.7% of June’s rate locks. This was up from 14.3% in May and 12% for June 2021.

Veterans Affairs-guaranteed loans maintained a 10% share in June, similar to levels seen both one month ago and one year ago.

Still, the decline in the average loan amount to $351,000 from $359,000 in June is a sign that the government programs are taking market share from Fannie Mae and Freddie Mac, Black Knight said.