A mortgage refinance boom was underway in October, according to ICE Mortgage Technology, a part of Intercontinental Exchange, Inc. ICE continuously tracks mortgage and refinancing activity and publishes reports monthly.
"Softening mortgage rates expanded the pool of refinance candidates in October, pushing prepayments to their highest level in three and a half years," said Andy Walden, head of mortgage and housing market research at ICE. "This trend was largely driven by people who purchased homes at elevated rates in recent years seizing the opportunity to lower their monthly payments."
"Prepayment" is the industry term for whenever a mortgage borrower pays down a loan earlier than scheduled. That sometimes happens when borrowers use a bonus or windfall to reduce their debt.
But, at times like this, it's mostly homeowners refinancing. Refinancing means trading in an existing mortgage for a whole new one. So the original mortgage is prepaid in full.
We don't yet have data for November. But mortgage rates have remained low, and we suspect the refinance boom is continuing.
Homeowners Managing Mortgages Well
Elsewhere in ICE's report are data around the number of homeowners struggling with their loans. And the news is mostly good.
"Overall mortgage health remains solid, with continued improvement in delinquency rates across all stages," said Walden. "While foreclosure activity has ticked up, levels remain historically low. This uptick is driven by a rise in FHA foreclosures along with the resumption in VA foreclosures following last year's moratorium."
The number of delinquent mortgages (at least 30 days past due but not in foreclosure) fell, as did late-stage (90+ day) delinquencies. Leaving aside the FHA and VA foreclosures Walden mentioned, the foreclosure rate is also falling.
Is The Boom Causing Rates to Rise?
And bond investors are well aware when they buy mortgage-backed securities (MBSs, the bonds that largely determine mortgage rates) that refinance booms happen. Those are hardly new, and they're part of the reason for the "spread" (gap) between yields on MBSs and U.S. Treasury securities.
In other words, mortgage borrowers pay higher rates than the government on their loans, partly because investors are aware that many mortgages will be prepaid during their terms.
Of course, if demand for mortgages increases and the supply remains fixed, they'll become more expensive. But the Journal might have just as well have written another article with the headline, "The Race to Add a Christmas Tree to Every Living Room Makes Trees More Expensive for Everyone."
