Refinances made up 31% of total originations during the quarter, their lowest level since 2000. The period saw refinances decline by 20%, or $37 billion. Offsetting this decrease was a 57% increase in purchase lending during the quarter, representing $117 billion in activity. The increase drove purchase originations to their highest level since 2007.
“However, the number of purchase loans being originated still lags the pre-crisis average by almost 30%; while overall purchase origination volumes are strong from a total dollar amount perspective, the market still does not appear to be performing at peak capacity,” said Ben Graboske, executive vice president of data and analytics at Black Knight. “One key cause is the more stringent purchase lending credit requirements enacted in response to the financial crisis.”
As a result, Graboske said the purchase market is performing two-thirds below its maximum potential, with the lack of credit availability to borrowers with lower credit scores posing a substantial headwind to the purchase market. He said that during the second quarter, 74% of all purchase lending was made to borrowers with credits scores of 720 or higher, compared to the 47% average share in pre-crisis periods. There are currently 65% fewer purchase loans being made to borrowers with credit scores below 720 compared to pre-crisis rates. Based on averages for 2000 to 2003 as measure, up to 645,000 purchase loans were not originated during the quarter because of stricter lending requirements, Graboske said.
Purchase mortgages remain strong among millennials
Refi apps near 2017 high
Overall mortgage activity during the second quarter resulted in $467 billion in first-lien mortgages, an increase of 20% from the first quarter, but dropping 16% from the second quarter of 2016, according to the mortgage monitor report released by the data and analytics division of Black Knight Financial Services.