Lenders Shift Focus to Home Buyers as Refinances Slow

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Refinancings have kept lenders busy as homeowners have arranged lower mortgage rates to lessen their monthly mortgage payments. But as the 30-year fixed-rate mortgage rises above 3%, lenders are shifting their focus to compete for more home buyers as refinancings slow down.

In the third quarter, purchase mortgages comprised nearly half of the loans packaged into government-backed securities and sold to investors, the highest share since prior to the pandemic, according to Inside Mortgage Finance, as reported by The Wall Street Journal.

The refinance surge has largely ended as mortgage rates have increased. Applications to refinance a home loan fell by 7% last week and are 22% lower than a year ago, the Mortgage Bankers Association reported Wednesday.

“Refinance applications declined for the fourth week as rates increased, bringing the refinance index to its lowest level since July 2021,” says Joel Kan, the MBA’s associate vice president of economic and industry forecasting.

But the home purchase market remains hot, even as rates have inched up. The 30-year fixed-rate mortgage averaged 3.05% last week, according to Freddie Mac.

As refinancing activity declines, home buyers may find themselves better positioned to negotiate a lower interest rate, Sam Polland, a loan officer at Intercoastal Mortgage LLC in Potomac, Md., told The Wall Street Journal.

Lenders refocusing on the home purchase market are thriving. U.S. Bancorp says that in the first half of 2021, about half of its mortgages went to buyers. It originated more than $28 billion in the third quarter, up 11% from a year ago, according to Inside Mortgage Finance data.