Refinances are now down by more than 50 when compared to this same time last year according to a report from the Mortgage Bankers Association

This decrease is due to a combination of factors, including rising interest rates, tighter regulations, and diminishing returns on investment.

When looking at purchase activity, it is still lower than levels seen pre-pandemic. However, MBA Chief Economist Joel Kan notes that purchase mortgage originations remain strong and well above recent averages. This is in part due to pent up demand and an environment of low mortgage rates. Kan reports that recent data suggests that purchase activity has outpaced refinances since December 2020.

This shift away from refinances comes as interest rates have seen an uptick in the past few weeks. After staying below 3% for most of the past year, mortgage rates began to rise in late February 2021. This increase of around 20 basis points over the past month has caused some potential borrowers to delay their decision to refinance until they see if rates will come back down.

In addition to the rise in interest rates, additional regulations passed by the Consumer Financial Protection Bureau (CFPB) have also had a negative impact on refinance activity. These rules, which include the Ability to Repay Qualified Mortgage and the TILA-RESPA Integrated Disclosure (TRID) rule, require lenders to perform additional steps for borrowers looking to refinance their existing mortgage. This added burden means that home loan applications take longer to process and can be more expensive for lenders, resulting in fewer refinances.

The diminishing returns on refinances has also played a role in the lackluster activity in this area. With current interest rates rising from historic lows, there is less incentive for borrowers to pursue a refinance because the savings from lower payments may not be enough to justify the costs associated with the transaction.

Overall, the refinance market has had a sharp decline when compared to this same time last year. Rising interest rates, new regulations, and diminishing returns on investments have all played a role in this decreased activity. At the same time, the purchase market remains strong, suggesting that there is a good demand for new homes even in the face of a weak refinance market.

This article was contributed on Nov 07, 2023