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6.5-Year High in Refinance Lending

  • After hitting an 18-year low in Q4 2018, refinance lending rose 250% year-over-year to hit a 6.5-year high in Q4 2019
  • While rate/term refinance activity drove the bulk of the increase, cash-out lending rose to a more than 10-year high
  • Cash-out lending hit a more than 10-year high in Q4 2019, with some 600,000 borrowers pulling an estimated $41B in equity from their homes, the largest quarterly volume since 2007.
  • 44.7 million homeowners hold a total of $6.2 trillion in tappable equity. Average homeowner having $119K in equity.
  • Despite the surge in refinance activity, mortgage servicers have struggled to recapture the business of refinancing borrowers, with just one in five borrowers remaining with their servicer post-refinance
  • Retention rates among cash-out refinance lending was even worse, with just 17% of cash-out borrower business being retained.
  • Fewer than one in four borrowers refinancing to lower their rate or term – business which has been historically easier to retain – stayed with their servicer post-refinance in Q4 2019.
  • Borrowers who left for ‘greener pastures’ received an average 0.08% lower interest rate than those who stayed, strengthening the need for tools to ensure rate pricing is competitive.
  • Retention challenges are even more pronounced among cash-out refinances, for which retention rates fell from 19% in Q3 2019 to just 17% in Q4 2019, the lowest in more than four years.
  • What’s more, the same falling interest rates that have reheated the housing market have also increased the rate of equity growth for the third consecutive quarter.
  • Tappable equity grew 9.0% year-over-year in Q4 2019, the highest such growth rate since Q3 2018.
  • Refinance lending is up 250% year-over-year, cash-out lending is at a 10-year high and 75% of homeowners with tappable equity have first lien interest rates at or above today’s prevailing rate.

The month’s data also showed that, as interest rates fell throughout 2019, an increasing share of homeowners reduced their interest rate as part of the cash-out transaction, helping to offset some of the cost of borrowing against their equity.

In fact, in Q4 2019, approximately 76% of homeowners were either able to keep their interest rate the same or, in many cases, significantly decrease their interest rate through cash-out refinancing, the largest such share since Q4 2016.

This includes 50% who decreased their interest rate by at least 0.50% and 25% who decreased their interest rate by 1% or more.

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