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Refinancing Surge Hung on Need for Cash and Appeal of Low Rates


May 16, 2020 by Marc Rapport

Americans are refinancing their homes at a furious clip as they take advantage of interest rates at a 50-year low and, for many, access much-needed cash in households financially strapped by the coronavirus pandemic.

The Mortgage Bankers Association reported last week that refinance activity was up 200% from a year ago and accounted for 67% of all mortgage applications during the week ending May 8. And digital mortgage lender Better.com said it has seen an 80% increase in cash-out refinance applications since the pandemic took hold in March.

A dash for cash as pandemic shutters businesses

Better.com co-founder and head of operations Shawn Low attributes that surge to the need for cash as unemployment hits Great Depression levels and interest rates fall to new lows.

"There's a lot of uncertainty for people, and it's understandable to want to have more cash on hand to meet unexpected and emergency needs," Low said. "A cash-out refinance enables people to meet their short-term liquidity needs by tapping their home equity."

He said his company funded $1.4 billion total in mortgage loans in April. The company said it has seen a 200% increase in demand for all mortgage loans since the pandemic began.

Millennials lead the way, according to Ellie Mae

Ellie Mae, a loan origination software provider that claims 35% of the U.S. mortgage processing market, said it also is seeing all-time high refinancing activity and that millennials are leading the way.

Borrowers between 21 and 40 years old accounted for 38% of the refinancing market in March, up 4 percentage points from February, the company said. Their average interest rate was 3.66%, the lowest since May 2016, Ellie Mae said in its Ellie Mae Millennial Tracker report released on May 6.

The refinance share for older millennials -- 30 to 40 year olds -- was 46% in March, compared to only 21% for the younger set, those 21 to 29 years old, Ellie Mae said its data showed.

Younger millennials lean more toward FHA loans

The data also showed that younger millennials were more likely to seek nonconventional loan types. For example, 27% of their closed loans in March were FHA loans, compared with 16% for the older millennials.

"FHA loans tend to be a great option for younger borrowers as they require a smaller down payment and have more flexible credit requirements than conventional loans," Joe Tyrrell, Ellie Mae's chief operating officer, said in his company's report.

"Educating millennials on the various loan types available is a priority for lenders, and seeing younger millennials securing FHA loans is a sign that lenders are making progress on this front," Tyrrell said.

Despite the application surge, average close time for refinances fell by two days from February to March, to 36, the company said, while the average time to close all mortgages fell by two days to 39.

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