Millennials bring refinances to 4-year peak after Fed rate cuts

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As mortgage rates plunge due to coronavirus-related Federal Reserve rate cuts, the refinance share of closed loans from millennial borrowers rose for the third straight month, to the highest level since Ellie Mae began tracking the data in 2016.

The average 30-year rate locked by millennials fell to 3.66% in March, dropping from 3.86% in February and from 4.75% in March 2019. It also marked the lowest average closing rate since May 2016.

About 38% of loans closed to millennials in March were refinances, up four percentage points month-over-month. It's a substantial jump from an 11% share year-over-year. The March 2020 purchase share accounted for about 61% with the remaining 1% unspecified.

"The Federal Reserve cut its target interest rate to near-zero in March, causing interest rates to drop and giving savvy millennial homeowners the opportunity to refinance to more favorable rates," Joe Tyrrell, chief operating officer at Ellie Mae, said in a press release. "That pattern follows a trend we've seen in our data over the last 12 months."

The average millennial FICO score stayed static at 731 from February, but it was a jump from 720 year-over-year. At 31.3 years, the average age for millennial borrowers inched up from 31.2 years the month prior and a full year from March 2019.

Married individuals represented approximately 58% of loans closed. Overall, nearly 61% of primary borrowers were male, 29% female and 10% unspecified. The average loan amount grew to $211,535 from $210,860 in February and $196,420 the year prior. It took 39 days to close a loan to this demographic, a decrease from 41 days and 40 days the month and year before, respectively.

Tyrell noted that it was surprising to see "time-to-close numbers decreasing despite the surge in refinance activity and the limitations lenders are facing as a result of COVID-19."

"Technology is now more important than ever and lenders investing in the solutions necessary to manage their pipelines virtually are seeing success," he added.

Conventional mortgages accounted for about 77% of completed loans to millennials in March, while 19% were Federal Housing Administration loans. Mortgages guaranteed by the U.S. Department of Veterans Affairs accounted for 1%, while other unspecified types of financing constituted the remaining 2%.

When broken down between older millennials (borrowers between 30 and 40 years old) and younger millennials (borrowers between 21 and 29 years old), the splits change.

Refinance share for the elder faction is at 46% compared to 21% for the younger group. By loan type, conventional mortgages made up an 81% share for older millennials versus 69% for younger and FHA loans made up 16% and 27%, respectively.

"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. "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."

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Refinance Purchase Mortgage rates Coronavirus Ellie Mae Federal Reserve FICO FHA The VA
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