New rate-lock data shows impact of homebuilder buydowns

Borrowers taking out new-construction loans from homebuilder mortgage affiliates are seeing a tangible discount in their rates compared to customers of other lenders, thanks to buydowns, according to a new index. 

The spread in locked rates between 30-year loans from builder subsidiaries and originations coming from non-builder lending companies grew to as wide as 179 basis points in early August, Mortgage Capital Trading said. MCT's new builder index factors in new-home originations data of both conventional and Federal Housing Administration-backed mortgages. 

The rate on a 30-year loan from homebuilders was 137 basis points lower on a weighted average on Wednesday, standing at 5.23% as opposed to 6.6% among non-builder entities.  

"Isolating builder-affiliated locks shows a spread that headline rate averages tend to smooth over and that spread is where you can see buydown activity at work," said Paul Yarbrough, MCT's senior director, head of data and analytics.

The company's comparative tool arrives as sales momentum grows in the new-home purchase market this summer, with buyers taking advantage of a surplus of available inventory builders are looking to offload through incentives, like rate buydowns. In its most recent survey of builder lenders, the Mortgage Bankers Association reported new-home lending applications ahead of last year's pace. 

July's rate-lock data

Across all types of mortgage transactions, lock volume activity declined on a monthly basis by 6.06% in July, MCT also reported. 

Purchase volume fell by a similar 6.08%. Meanwhile, rate-and-term refinances took a 9.55% tumble between June and July, while cash-outs slid by a more muted 3.66%. 

A steady rise in mortgage rates diminished borrower appetite throughout the month, the firm's researchers said. 

"Purchase production is still driving the overall average, as steady growth in the economy continues to help support the purchase market," said Andrew Rhodes, MCT head of trading.

In a separate report, mortgage software provider Optimal Blue concurred with MCT's findings but saw July origination volume shrinking even more, with rate-lock activity down 11% month over month. Activity was still higher than a year ago, according to its internal data.

Like MCT, Optimal Blue pointed to recent mortgage-rate acceleration as the driving force behind last month's slowdown. 

"July was a clear reminder of how sensitive this market remains to rate movement," said Mike Vough, senior vice president of corporate strategy at Optimal Blue. "Momentum remains fragile and highly dependent on where rates move next."

Purchases made up 81% of total lock volume, with refis at 19%, Optimal Blue's market report said. 

Non-QM continues its growth

The conforming share of the market pulled back to 47% of lock activity, further contracting by 135 basis points from June and approximately five percentage points year over year. Non-conforming volume grew to 21%. 

In government lending, FHA production totaled 19% of total market share, while locks on Department of Veterans Affairs-backed mortgages came out to just over 12%, according to Optimal Blue's report. 

The non-qualified mortgage segment of the market maintained its upward trajectory, making up more than 10% of all locks last month. The share came in two percentage points higher than a year ago. Expanded guideline products represented 36% of non-QM, with debt-service coverage ratio nabbing more than 33%. Bank statement loans accounted for the remaining 30% slice.