The refinancing boom is stressing lender capacity, according to a Federal Reserve governor, and it provides a partial explanation for the low level of purchase-mortgage originations, particularly for borrowers with low credit scores.
“When capacity constraints are binding, lenders may prioritize the processing of easier-to-complete or more profitable loan applications,” Fed Gov. Elizabeth Duke said Thursday.
She noted the refinancing applications have increased over the past year and a half while industry hiring has “only edged up” over that period.
Over 80% of loans purchased by Fannie Mae and Freddie Mac in the first quarter were refinancings, according to the GSEs. The weighted average credit score on Fannie loans was 757 and 753 on Freddie loans in the first quarter.
Meanwhile, the intake of purchase-mortgage applications is at a level last seen in the mid-1990s.
“Preliminary research by the Fed’s staff suggests that the increase in the refinance workload during the past 18 months appears to have been associated with a 25% to 35% decrease in purchase originations among borrowers with credit scores between 620 and 680 and a 10% to 15% decrease among borrowers with credit scores between 680 and 710,” Duke said.
The Fed governor noted that this “crowding-out effect should unwind as the current refinancing boom decelerates.”
A recent Fed
