Research Report Housing Finance: At a Glance Monthly Chartbook, March 2024
Laurie Goodman, Janneke Ratcliffe, Michael Neal, Jung Hyun Choi, Linna Zhu, John Walsh, Daniel Pang, Amalie Zinn, Katie Visalli, Aniket Mehrotra, Matthew Pruitt, Alison Rincon, Todd Hill, Anna Barcus, Erin Koons
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The March 2024 edition of At A Glance, the Housing Finance Policy Center’s reference guide for mortgage and housing data, shows the serious delinquency rate on Freddie Mac’s multifamily loans increased to 0.44 from 0.28 percent, nearly equal to Fannie Mae’s rate of 0.45 percent, the Ginnie Mae share of monthly agency gross issuance reached a new series high of 43.5 percent in February and Agency MBS held by commercial banks increased 16 percent from 2023 Q3 to 2024 Q1 after 6 consecutive quarters of declines. This edition features an analysis of Optimal Blue daily rate lock data.

Findings From Optimal Blue Rate Locks

Optimal Blue loan level rate lock data provide daily insights into mortgage lending. With this data set, we investigated timely changes in loan characteristics and lending volume in response to changes in prevailing mortgage interest rates.

The range of mortgage rates offered increased as rates increased

Shopping around for a good mortgage rate became more important as the federal reserve tightened monetary policy and lending costs increased over 2022. We found that variation in interest rates, the difference between the 25th and 75th percentiles of mortgage rates offered in a given week increased significantly in 2022 and has remained elevated through 2023 and so far in 2024 (page 38).

From 2015 through 2019, variation in interest rates held steady at around 50 basis points. In 2020, as rates decreased to historic lows, this spread decreased to around 40 basis points. Then the spread increased to about 80 basis points as interest rates increased in 2022. The widening in the mortgage rate distribution is generally mirrored by rises in the ICE MOVE index, a measure of interest rate volatility. That is, both the distribution in mortgage rates and the MOVE index experienced a similar rise over 2022 and have remained elevated since. More recently, however, as the MOVE index has declined, the mortgage rate distribution has not narrowed.

In general, there is greater variation in interest rates on refinance loans than purchase. Rates also vary more among government loans (those backed by FHA, VA and USDA) than conventional loans. Variation in interest rates is also greater for borrowers with low credit scores than high (page 39). These borrowers who are more likely to experience greater variation in interest rates on a weekly basis would likely benefit more from shopping around for better rates.

Cashout refinance loans in a high-rate environment

Less than 2 percent of outstanding agency loans have an interest rate at least 50 basis points higher than the prevailing market interest rate on a 30-year mortgage (page 9). Most borrowers refinancing now are receiving a higher interest rate, therefore most refinance activity is to extract equity (page 11). Borrowers pursuing cashout refinances have lower median credit scores than borrowers who pursue rate/term refinances. The median credit scores on rate/term and cashout refinances also increased during 2020, surpassing the median credit score for purchase loans as a cashout refinance was the most economic way to extract equity. Following the rise in interest rates in 2022, median cashout refinance credit score dropped to a series low and remains low relative to other originations (page 40), suggesting that the most vulnerable borrowers are the major users of cash out refinances as the vehicle of choice to extract equity; higher credit score borrowers have more attractive options to extract equity, such as home equity line of credit, and may have less need for the cash.

The share of lower credit score borrowers pursuing cashout refinances is higher now than it was in 2013. Moreover, as the cashout refi share increased for all borrowers in 2020 and 2021, borrowers with credit scores below 660 seemed to lag in this rush to refinance, with the lowest cashout share at the beginning of the run-up in mid-2020 and the highest at the peak in early 2022. The cashout refinance share for these lower credit borrowers has been very slow to decrease relative to other groups, as it may be their best option to obtain cash.

Affordability is especially constrained for low-income homebuyers

We are in the midst of a housing affordability crisis, even with interest rates slightly down from October 2023, it is more difficult to afford a house now than it was at the peak of the 2005 housing bubble (page 23). The median homebuyer in 2023 and so far in 2024 is cost burdened, paying at least 30 percent of monthly earnings on debt payments. However, this crisis is not felt evenly by everyone; lower income homebuyers are more severely cost burdened, with the median homebuyer in 2023 and so far in 2024 with an annual income less than $150,000 paying over 40 percent of their monthly income on debt payments (page 41).

Research Areas Housing Housing finance
Tags Housing Finance at a Glance: A Monthly Chartbook
Policy Centers Housing Finance Policy Center