Retention rates fade to record lows for mortgage servicers

Servicers struggled to bring back their borrowers as the overall retention rate crept down to its nadir in the fourth quarter, according to Black Knight.

The retention rate fell to 18% compared to 20% a year ago, while holding steady from the third quarter, according to the Mortgage Monitor report. This represents only the third instance in which it fell below 20% since the fourth quarter of 2006.

Cash-out refinances — which prove more challenging to recapture — had an 11% retainment rate, down from 17% annually and 12% quarterly. Meanwhile, rate-and-term refinances had a 23% retainment rate, a downtick from 24% the year before and up from 22% in the third quarter.

Nearly 2.8 million borrowers refinanced their mortgages in 2020’s closing quarter, leading to a record $869 billion in volume. Black Knight’s lock rate data through mid-February, which assumes a 45-day closing timeline, shows refinancing remaining at high levels for the first quarter of 2021.

While recent surges brought interest rates to an eight-month high and slowed borrower activity, an additional 2.8 million homeowners project to refinance by the end of March. Black Knight’s numbers show that would represent a 25% drop quarter-over-quarter.

"With rates on the rise, refinance incentive has been significantly curtailed. Just under 13 million high-quality refinance candidates remain in the market — a nearly 30% drop in just the past three weeks,” Ben Graboske, president of data and analytics at Black Knight, said in the report.

Servicers failed to retain an estimated 2.3 million borrowers in the fourth quarter of 2020. Mortgage servicing technology is considered ripe for disruption in areas that include customer retention.