And refi volume for the third quarter will be even higher.
U.S. lenders issued a staggering $1.1 trillion in home loans between April and June, marking the biggest quarter in at least two decades, according to mortgage data firm Black Knight. The record quarter highlights the growing disparity between homeowners who are primed to take advantage of perfect conditions, and those who are simply desperate to not lose their homes.
The surge in activity was driven primarily by an unprecedented rush to refinance. With rates ticking down to historic lows, homeowners tested lenders’ capacity limits with more than 2.3 million refinancings in the quarter, the most in nearly 17 years. Seventy percent of the total loans originated by dollar value in the second quarter were refinancings, according to Black Knight’s data.
Most took advantage of 3% interest rates to lower monthly payments; cash-out lending comprised just 3 out of 10 refi originations in the second quarter, Black Knight found.
The third quarter is shaping up to be even wilder – locks on refis that are expected to close in the third quarter are up 20% from the second quarter.
“With market conditions as they are and given the recent delay of the 50 basis points fee on GSE refinances until December, we would expect near-record low interest rates to continue to buoy the market,” Ben Graboske, president of data and analytics for Black Knight, said in a statement. “After all, there are still nearly 18 million homeowners with good credit and at least 20% equity who stand to cut at least 0.75% off their current first lien rate by refinancing.”
And while the purchase market was down 8% largely due to coronavirus-related reasons, rate locks suggest that pent-up demand could lead to record activity in the third quarter.
“Purchase locks in Q3 2020 have already made up for the losses of a COVID-impacted Q2 – and then some – based upon normal seasonal expectations,” said Graboske. “In fact, rate locks are suggesting that we could see Q3 purchase lending break typical seasonal trends and rise by 30-40%, which would push us to a new record high.”
The growing inequality in America, however, is also highlighted in Black Knight’s Q2 report. Though unemployment dropped to 8.4% in August, more than 11 million jobs have disappeared since March. To compound matters, supplemental federal unemployment benefits totaling $600 a week expired in July. Markets with the biggest delinquency increases in July were in New York, New Orleans, Las Vegas, Orlando and Miami.
Loans that are more than 90 days past due – known as “serious delinquencies” – increased 450% from pre-pandemic levels, though total loans in forbearance continued to drop from a high in May.
Of the 3.9 million homeowners still in forbearance, 2.85 million have had the term of their forbearance plan extended while 1.07 million still remain in their original term, according to Black Knight. Homeowners with less equity and unfavorable credit were more than twice as likely to have entered forbearance plans.