Low Rates Have Led To Record Mortgage Origination Volumes Since 2005 | Credit Raters

Low Rates Have Led To Record Mortgage Origination Volumes Since 2005

14 Feb 2020
Approx Reading time: 3 minutes
  • The quarterly figure for mortgage origination volume stood at a massive $752 billion in the final quarter of 2019.
  • Experts believe this increase has come due to historically low 30-year Treasury yield rates as well as technological advancements that have made it faster and easier for borrowers to make mortgage applications.
According to data reported by the Federal Reserve Bank of New York, the volume of mortgage origination has gone up to $752 billion towards the last quarter of 2019, the highest point since 2005. This is a significant increase from the $528 billion reported for the third quarter of last year. According to the bank, the leading cause of this increase is a surge in refinancing activity. In the first week of February, around 66% of all applications were for refinancing. Although part of this increase has come from historically low US Treasury yields, as was the case back in the fourth quarter of 2016 when the 30-year Treasury yield rate in July of that year stood at 2.09%. At that time, it had taken around three months for mortgage borrowers to opt for refinancing. However, when the 30-year yield rates fell to a record low of 1.9% towards the end of August 2019, some mortgage borrowers acted in as little as five weeks to refinance their mortgage. Experts have associated this quick reaction of the market to technological advancement. Closing a refinancing took 47 days back in 2016, and now it takes only 35 days to do the same, while some lenders have a processing time of fewer than three weeks. Combined with historically-low mortgage rates, such advancement in technology has created the perfect environment for homeowners to apply for a mortgage loan. Prospective borrowers can now get pre-approved in minutes by applying through their cell phone, as lenders conduct automatic background checks to evaluate the mortgage amount for which a prospective borrower qualifies. Demographically, the origination volume has clear segregation in the consumer base. The highest increase came from applicants falling in the 60-69 age bracket, while in value terms those aged between 40-49 years showed the biggest increase. Credit scores also had an impact, with those having a score of more than 760 accounting for approximately $479 billion of the total origination volume, while those falling between 720-759 accounting for over $100 billion. The rest came from those with a credit score of under 719. However, such an increase in volatility is bound to cause stress among investors of mortgage bonds, which offer the most optimal returns in times of low volatility in the mortgage market due to lower risk. Under current circumstances, there is a higher risk of early prepayments. Still, homeowners are currently the ultimate beneficiaries, having taken advantage of lower financing costs by investing savings into mortgages. According to experts, this surge in origination volumes is expected to continue for the time being, as more borrowers enter the market with historically low rates.
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Akbar Lashari

Akbar is a talented news editor who follows the consumer finance industry closely and has written for many famous news & educational websites such as Forbes.