Lower credit scores for mortgages refinanced in the first quarter are likely to lead to increased defaults of these loans, said Black Knight Financial Services.

Total mortgage volume was $372 billion for the quarter, down 9% from one year prior and the worst quarter since the fourth quarter of 2014.

Refinancings made up 45% or $167 billion. "Refinance lending among higher credit score borrowers, who have largely driven the refinance market these past several years, saw a quarterly decline of 50%," said Black Knight Executive Vice President Ben Graboske in a press release. "At the other end of the credit spectrum, lower credit borrowers — those with credit scores below 700 — only saw refinance volumes decrease by 24%."

As a result, there has been a net lowering of the average credit score on refis, which typically outperform purchase mortgages.

The average refi credit score was 742 for the first quarter, down from 751 in in the fourth quarter, and the lowest average credit score since the third quarter of 2014, he said. "Both of these factors could have a dampening factor on mortgage performance, holistically speaking," Graboske said.

There was a 3% year-over-year increase in purchase volume during the first quarter, the smallest annual gain since the fourth quarter of 2013, he said. The year-over-year gain in the fourth quarter of 2016 was 12%.

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