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REFINANCES RISING: OakStar Bank's Aaron Jernigan says the company closed $48.8 million in refinance transactions during the first quarter, tripling its total from the same period in 2019.
SBJ photo by Jessica Rosa
REFINANCES RISING: OakStar Bank's Aaron Jernigan says the company closed $48.8 million in refinance transactions during the first quarter, tripling its total from the same period in 2019.

Refinances surge in record rate environment

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Mortgage loan rates hit a historic low – 3.29% in early March – and financial institutions are working overtime to keep up with the influx of refinance applications.

“It’s probably some of the busiest times I’ve ever seen in my career,” said Aaron Jernigan, OakStar Bank’s president of mortgage banking and a 25-year industry veteran. The bank tripled year-over-year refinance transactions this past quarter.

Banks and credit unions have experienced a steady uptick for refinancing mortgages, preceding the arrival of the coronavirus pandemic. Rates have hovered between 3.3%-3.4% since mid-April.

“Once the word got around that mortgage rates were low, the floodgates opened,” said Derek Chaney, a residential lender at Mid-Missouri Bank. “It was just nonstop phone calls, nonstop applications.”

Chaney said the bank’s loan activity has increased by 30%-40% in recent weeks.

As of the third week of April, mortgage rates were at a national average of 3.31% for a 30-year fixed-rate home loan, according to a survey by the Federal Home Mortgage Corp., aka Freddie Mac. Rates dipped to 3.29% for the week ending March 5, the lowest in the survey’s history, which dates back to 1971.

Jernigan said refinances have increased every month this year at OakStar Bank, which fueled a big first quarter. The bank closed 180 refinance transactions for $48.8 million. That’s up 180% from its first-quarter 2019 performance of 64 refinance closings, which totaled $14 million. OakStar is the largest mortgage lender in the Springfield area, according to Springfield Business Journal list research.

In the pipeline
This month and next are looking even busier, Jernigan said. Three out of every four of the 450 mortgage loans the bank is processing over the next 60 days are refinances.

“We’ve got an extremely large pipeline to close out,” he said.

Chaney said in a typical busy time, the bank would process 90-100 mortgage loans a month. Currently, it’s 130-140 loans, with refinancing applications making up 70%-80% of the total.

“We have more loans in our pipeline than we’ve ever had,” he said, noting the last week of February and first week of March was where the massive influx started. “Really anybody that had a rate over 4%, it seemed, were calling us and seeing how much lower they could get their current rate.”

The surge has caused Washington, D.C.-based Mortgage Bankers Association to alter its forecast in 2020.

The MBA expects refinance originations will far surpass its earlier projections, increasing 36.7% to around $1.23 trillion.

Jason Lister, vice president of mortgage lending at Assemblies of God Credit Union, connects the activity to consumers slowing down during COVID-19 orders.

“Typically, in February, I may close 10-12 loans. Now, I have 70-plus in my pipeline,” he said.

As so many people are spending more time at home, they’re researching the financial viability in refinancing, he said. Others simply want to lock in a lower house payment at a time when bills are of greater concern.

“As we do a refinance, it seems like that individual seems to be telling every sister, brother, parent, cousin, friend about the new low rate and it just continues to blossom,” Lister said.

The increased activity at AGCU follows a record year in loan closings, Lister said. The credit union closed on $83 million in mortgages with just three full-time loan officers. Roughly half of the loans were refinances.

Projections late last year for 2020 were $70 million in loans, comprising 70% home purchases and 30% refinances.

“Those projections completely went out the door,” he said, as of March, noting refinances may end up representing 60% of the loans this year.

“If things don’t slow down this year, we should pass $100-plus million in loans,” he said.

In April 2019, the typical rate for a 30-year fixed mortgage was nearly a full percentage point higher, at 4.17%. According to a report from online lender LendingTree, homeowners who refinance a 30-year fixed mortgage signed just last year can save $60 a month for every $100,000 borrowed.

Refinances are still projected high amid a reduction in home sales. A report in April by Federal National Mortgage Association, aka Fannie Mae, predicts home sales will drop by nearly 15% to 4.5 million units this year.

Due diligence
Banking officials are telling customers to expect delays in refinance closings.

Chaney said refinances normally take around 30 days at Mid-Missouri Bank. Now, it’s closer to the 45-day mark. The process in general is backed up, he said, as agencies dealing with appraisals, title work and underwriting also are getting hit with a high volume of loan applications.

Refinance closings are taking 50-60 days at OakStar, Jernigan said.

With the higher application volume and significant economic impact of the coronavirus, lenders are taking a more cautious approach in the loan process.

Lister said guidance from Freddie Mac and Fannie Mae is being updated weekly to be sure lenders are frequently verifying income and employment status of applicants.

Chaney said verbal verification with employers to confirm an applicant’s employment status was typically acceptable, but not now.

“We have to dig a little deeper,” he said.

It’s a protective measure, lenders say, as unemployment claims are being made at record levels – 26 million people over a five-week span ending the week of April 18.

“We’re verifying with their employer they are employed at the same levels right up to the day of closing,” Lister said, adding the borrower also must sign an affidavit testifying their income has not dropped and they’re not defaulting on their current loan.

“It’s really required us to do a lot of due diligence.”

The loan default risk should be low because lenders are keeping a closer eye on employment levels and paystubs, Jernigan said. Lenders agree there’s no end in sight for low mortgage rates.

Freddie Mac expects the 30-year fixed figure to stay around 3.3% for the rest of 2020 – well below last year’s average of 3.9%. But activity could be tempered as consumers cautiously wade through financial decisions while dealing with COVID-19 issues.

“A lot of that depends on the economy and how it recovers,” Jernigan said.

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