Mortgage lock units higher in February

Mortgage rate locks by dollar volume increased month-to-month in February, even as the number of units dropped, a sign that high home prices are still driving the market, Black Knight found.

Its Market Volume Index, which is calculated on dollars, increased 2.3% last month compared with January, driven by a 4% rise in purchase activity. But total volume was still down 58.8% versus February 2022. Seasonality played a role in the month-to-month increase, Black Knight's Originations Mortgage Monitor report stated.

Among refinancing options, cash-out rate locks dropped 11% from January, while rate-and-terms were virtually flat. 

When compared with February 2022, purchase was down 45.4%, cash out off by 84.3% and rate-and-term were 82% lower.

The return to a rising interest rate environment during February took its toll on locking activity.

"Even though the number of rate locks was down month over month, dollar volume increased due to a rate environment that favored jumbo and [adjustable rate mortgage] loans over GSE products," said Kevin McMahon, president of Black Knight's Optimal Blue unit in a press release. "Essentially, though, the story remains the same — one of a market facing significant interest rate-driven headwinds."

The comments came out before news of the failures of Silicon Valley Bank and Signature Bank drove the benchmark 10-year Treasury yield down 50 basis points from its opening on March 9 to Monday morning to 3.51%, a level last seen at the start of February. That is having an impact on loan pricing; Zillow's rate tracker on Monday morning was 6.60% for the 30-year fixed, down 18 basis points from 6.78% on March 9.

Pundits are now discounting the likelihood of a 50 basis point short-term rate hike at the next Federal Open Market Committee meeting.

However, compared with one year ago, rates for the 30-year FRM average almost three percentage higher, according to Freddie Mac.

"As rates resumed their upward trajectory in February, borrowers responded predictably, moving toward more rate-favorable offerings," McMahon said. "That included a shift to jumbos, ARMs and other nonconforming products in the month."

Nonconforming products, which includes jumbos as well as other loans not eligible for Fannie Mae and Freddie Mac, saw their lock share increase 242 basis points during the month, to 12.2%, while the conforming share fell by 186 basis points to 56.6%. The share for the three kinds of government insured or guaranteed mortgages tracked, Federal Housing Administration, Veterans Affairs and U.S. Department of Agriculture, declined marginally compared with January although for the first two, activity remained elevated compared with February 2022.

Mortgage Capital Trading, which has its own rate lock tracker based on dollar volume, found using that metric, activity was down 15% from January and 54% from one year ago.

Because it uses a different calculation, MCT had a 13% decline in purchase locks compared with January, rate-and-term refis down 42% and cash-out volume off by 25%.