Mortgage rate declines may give refinances a fighting chance in 2019

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The mortgage industry shouldn't quite count out refinances in 2019.

Despite the pool of refi candidates shrinking by 30% from late 2017, the incentive for borrowers to refinance shot up at the start of the year on interest rate declines, according to Black Knight.

The population of homeowners who could qualify for a refi jumped 75% from a 10-year low hit in November 2018. This comes at a time when interest rates fell to 4.35% in late February, their lowest level in over a year.

But more potential refis doesn't necessarily translate to big business gains for mortgage lenders unless they put in the work — and larger online players may be the ones who do just that, according to Mid America Mortgage President and CEO Jeff Bode.

"I think we'll see an increase in refinances. Part of it is, it's one of those things that is a 'lender sold' issue as opposed to a borrower coming and finding that it's a benefit to them," said Bode.

"A lot of the online lenders have a bit of an advantage. The competitors out there — the Quickens and Guaranteed Rates — they've done such a great job in their marketing, it seems to have taken a little bit away from smaller lenders who are not able to find those borrowers as readily as those guys do," he continued.

Mortgage activity is lagging on lower home sales, so lenders can certainly leverage a larger refi pool to support profitability. And as refis gain traction, it's not unlikely that the purchase and refinance split hit an even 50% on either side in 2019, according to Bode.

"I think the bulk of the industry is marginally profitable, or not profitable at this time, so any opportunity [lenders] have for a transaction, they're going to jump on," he said.

Still, a larger pool of refi candidates doesn't mean borrowers will benefit dramatically. The 3.27 million homeowners likely to qualify for a refinance mortgage in January will be able to reduce their rate by at least 0.75% should they go that route, according to Black Knight.

Lenders pushing refis should stay mindful of borrowers' best interests to avoid poor practices like loan churning. Some may also be hesitant to actively pursue refis as they have investors expecting certain returns.

A majority of homeowners who could benefit from a refi bought their homes more than seven years ago, which could reduce the likelihood they'll do so. But for the 250,000 who refinanced last year when rates were on the higher side, they'll likely see a more significant result.

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Refinance Mortgage rates Housing market Mid America Mortgage Black Knight