Refinance demand getting lenders' attention

As refinance business continues to grow, mortgage lenders are responding by adding products that support this segment, primarily cash-out versions, to their offerings.

The Mortgage Credit Availability Index increased by 0.9% to 99 in August, the highest it has reached since last October and the closest to the benchmark level since May 2023. MBA uses ICE Mortgage Technology product data to compute the index and benchmarked it to 100 to reflect lending conditions in March 2012.

In July, the MCAI was 98.1, while one year prior, it was 96.6.

The conventional credit index rose to its highest level since July 2022, driven by increased cash-out refinance and non-qualified mortgage programs, said Joel Kan, MBA deputy chief economist, in a press release.

"Mortgage rates have been on the decline since May, prompting a pickup in refinance activity, which remains limited to a smaller segment of homeowners with higher rates," Kan said. "As a result, the increase in credit availability was the result of lenders broadening their refinance offerings to meet the greater demand."

The conventional index rose 1.8% month-to-month, with the conforming portion up 2.6% and the jumbo component up 1.5%. Kan noted the jumbo MCAI has increased eight months in a row to its highest point since 2022.

However, the government MCAI was unchanged versus July.

Refinancing made up 26% of mortgage rate lock activity in August, as purchase volume declined compared both with July and year-over-year, Optimal Blue's latest Market Advantage report said.

"Notably, August saw a remarkable 109% month-over-month increase in rate-and-term refi volume in response to a 31-basis-point drop in the benchmark [Optimal Blue Mortgage Market Indices] 30-year conforming rate, which ended the month at 6.37%," said Brennan O'Connell, director of data solutions, in a press release. "Rate-and-term refi activity was up 300% from the same period last year."

The Market Volume Index for rate-and-term refinances rose to 16 in August from 8 in July and 4 one year ago. After nearly equaling the cash-out MVI the last two months, it has now surpassed it, as volume in the latter category did not increase as much.

Cash-outs only rose 8% versus July and 20% over August 2023. Its MVI of 10 was up from 9 one month ago, and 8 last year.

The purchase MVI of 78 was down 10% from July and 12% from last August.

For all loan purposes, August's MVI of 99 was up 1% from the prior month and 3% from the previous year.

Optimal Blue noted the spread between the 10-year Treasury and 30-year fixed rate mortgage narrowed year-over-year by over 50 basis points, although at 246 basis points it is still wider than the norm of 150 basis points to 200 basis points.