Mortgage rate foreclosure activity slides in May

Mortgage rate locks fell month-over-month for all intents and purposes in May and a sharp drop in retirement credit ratings offers a worrying sign of economic turmoil, according to a report from Black Knight.

Total rate lock activity, an indicator of future mortgage issuance, fell 4.8% in May from april, likely resulting from volatility during the month, according to Black Knight’s Market Volume Index. At one point, Black Knight’s Optimal Blue unit trailed the 30-year fixed rate above 5.5% in May, but by the end of the month, rates fell back to 5.34%, or 7 basis points lower than in April.

The sharp decline in lock-ups for rate and term refinance loans led the way, down 23.9% from April and down 89.9% from May 2021.

Cash-out refi locks, a mortgage goal that is driven more by the borrower’s need for fundswere down 11.9% from the previous month and 42.2% from the previous year.

But in a sign withdrawal borrowers see more financial difficulties currently, May’s average credit score of 698 for this category was down 7 points from April, 20 points from February and 33 points from May 2021.

By comparison, credit scores for buyers were down just 1 point from a year ago, while for rate and term borrowers they were down 3 points.

Refinances for any reason accounted for just 18% of May rate locks, the lowest share recorded by Black Knight since it started tracking this data in January 2018.

Meanwhile, home purchase mortgage freezes fell 2.3% from April, but were flat from May 2021. However, excluding the impact of home price appreciationwhich drove up the balance sought in mortgage applications, purchase locks fell 8.5% year-over-year in May.

“Lenders are now more dependent on the buy market for origination volumes than they have been in 20 years,” Scott Happ, president of Optimal Blue, said in a press release. “Meanwhile, the trio of low inventory, high prices and rising rates that created the least affordable housing market in 16 years continues to create headwinds for precisely this segment.”

Still, government loan products, more typically used by borrowers who have lower credit scores and/or are unable to make such a large down payment, gained market share in May as activity Federal Housing Administration and Veterans Affairs foreclosures have increased at the expense of agency volumes. This trend was likely reflected in the observed decline in average loan size to $359,000 from $362,000, Black Knight said.

While conforming mortgages still held the largest share of the market by far, at 59%, this was 59.7% in April and 67.1% in May 2021.

Nonconforming mortgages, loans that do not qualify for Fannie Mae or Freddie Mac primarily due to dollar amount and/or credit, had a 16.3% share of May rate freezes, down from 17, 3% in April, but still above the 10.6% market share it had a year ago.

Rate locks for FHA-insured mortgages rose month-over-month to 14.3% from 13% in April; in May 2021, FHA loans had an 11.7% share.

Meanwhile, locked-in applications for VA-backed mortgages rose in May to 9.8% from 9.3% a month earlier and 9.7% in May 2021.

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