TheMReport — News and strategies for the evolving mortgage marketplace.
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40 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST ORIGINATION Rate Hikes and Millennial Homebuyers Despite rising interest rates, the industry's up and coming generation of buyers continue to stimulate the market. E ven with interest rates going up, millennials are still taking out loans for new homes, according to Ellie Mae. The Ellie Mae Millennial Tracker found that 83 percent of mortgage loans made to millennial buyers were for new home purchases, a 2 percent increase month-over-month, but a 3 percent decrease year-over-year. Meanwhile, interest rates have been on the rise. In February, interest rates went up from 4.24 percent to 4.39 percent month- over-month. While this seems to have pushed some buyers away, with non-millennial purchase loans declining from 57 percent of total closed purchase loans in December to 55 percent in February, millennials have been taking out more mortgage loans. According to February's data, these loans average around $199,352 for male millennial bor- rowers and $189,084 for female millennial borrowers. According to Ellie Mae, these millennials prefer conventional loans over FHA loans, as 68 percent of loans to millennials in February were conventional loans. The report notes that this is the highest percentage of conventional loans since 2016, while FHA loans were at their lowest of 28 percent. The high interest rates haven't stalled closing times either: mil- lennial homebuyers have been closing in the fastest times in two months. Purchase loans have been closing in an average of 41 days while refinance loans closed in an average of 43 days. "According to the U.S. Census, millennials are now officially the largest group of homebuyers in the U.S.," said Joe Tyrrell, EVP of Corporate Strategy for Ellie Mae. "Despite rising interest rates, we're continuing to see millenni- als exercise their purchase power across the United States as they represent 45 percent of total closed purchase loans in February. And with the spring homebuying season now underway, we'll see if the activity increases for this growing group of homebuyers." For Mortgage Rates, Shopping Around Pays Off Comparing lenders before mortgage purchasing can save borrowers big, according to industry research. B orrowers are likely to save an average of $1,500 over the life of a $250,000 loan if they compare rate quotes between lenders, according to an insight report from Freddie Mac. If they compare more than two quotes, their likelihood of saving more rises, the report indicated. The report found that 80 per- cent of borrowers who obtained one additional rate quote while shopping for a mortgage could save between $966 and $2,086 over the life of their loan. If they received five rate quotes, the expected sav- ings increased to $2,914, with 80 percent of those borrowers saving between $2,089 and $3,904. To arrive at these numbers, Freddie Mac analyzed the present value of the rate reductions from additional searching and comput- ed savings based on each week's survey for the average savings, and both the bottom 10 percent and the top 10 percent of savings for each week, then averaging across all weeks. Indicating that several factors in- fluenced the expected savings to a household, the report said that first, the savings would be proportionate to the loan size: a larger loan would increase these savings, and vice- versa. Additionally, borrowers who expected to have their mortgage for a longer term, and neither refinance nor move, were likely to gain more at a reduced rate. Dispersion of rate offers also affected savings as they could be higher during periods of economic stress. "By shopping more than one mortgage lender, consum- ers are more likely to get a better interest rate and save money in both the short- and long-term," said Len Kiefer, Deputy Chief Economist at Freddie Mac. "With lower monthly payments and lower fixed fees, the loan will be more affordable and thus safer, and consumers may have hundreds or thousands of dollars more in their pockets. Not a bad return for a few phone calls or clicks." Lending Tree also released its weekly Mortgage Rate Competition Index and Mortgage Savings Tracker that calculated the median spread between the lowest and highest APR of- fered by lenders in the market to showcase how much consumers stood to save by comparing rates during the process of shopping for a mortgage loan. According to the data on these indexes, the average savings in 2018 outpaced the savings for 2017, up to $27,000 from $21,000 for purchase mortgages. For refis, savings were up to $30,000 from $26,000. "By shopping more than one mortgage lender, consumers are more likely to get a better interest rate and save money in both the short- and long-term." —Len Kiefer, Deputy Chief Economist, Freddie Mac