According to the report, the number of borrowers who could both qualify and benefit from a refinance increased by a whopping 1.5 million—all since Jan. 1 of this year. This significant jump can mostly be attributed to the recent drop in interest rates, said Ben Graboske, data & analytics senior vice president at Black Knight.
“When Black Knight last looked at the refinanceable population just two months ago, there were 5.2 million potential candidates, and that number was on the decline,” Graboske said. “That analysis was shortly after the Federal Reserve raised its target rate by 25 basis points, at which time the prevailing wisdom was that mortgage interest rates would rise in response.”
Rates didn’t rise, however.
“Global economic shocks then sent investors looking for the safety of U.S. Treasuries, driving down yields on benchmark 10-year bonds,” Graboske said. “Mortgage interest rates began to fall in defiance of prevailing wisdom, and the refinanceable popular great by 30 percent in the first six weeks of 2016.”
In total, the report shows there are now 6.7 million borrowers who could qualify for a refinance and save an average of $3,000 per year. Broken down, 3.3 million of those borrowers could expect to save $200 or more per month, and another million could save as much as $400 or more per month.
“All totaled, potential savings in the market has swelled from $1.28 billion to $1.68 billion per month, or about $20 billion per year,” Graboske said.
In the report, a Black Knight example scenario depicts an even bigger increase in potential refinancees should interest rates continue to fall. If rates jump another 15 basis points—down to 3.5 percent—then the potential refinance population grows to 8.8 million, the largest number since 2012-2013. If rates rise, however, the report shows potential refinances will drop significantly.
Prepayment rates hit a two-year low in January, and while they haven’t yet indicated refinance activity is on the horizon, the report predicts an increase as 2016 continues.
“Given that refinance originations fell by 27 percent from Q1 to Q4 2015, and prepayment rates—historically a good indicator of refinance activity—hit their lowest levels in two years in January,” Graboske said, “this expansion of potential candidates could very well provide a welcome and unexpected lift to the market as we move forward in 2016.”
Click here to view the entire Mortgage Monitor.