In case you haven’t heard, there’s talk of a “refinancing boom” by 2025. Yes, you read that right.
While it may seem as though high mortgage rates will spoil the party for a long time, things can change quickly.
With millions of people taking out high-interest mortgages over the past two years, any slight improvement in rates could open the door to a flood of problems.
But now more than ever it will be important to deal with the right lender, the one that ultimately offers the lowest rate with the fewest fees.
This is especially true now as banks and lenders are working hard to improve recovery rates for former customers.
Refinancing Boom in 2025? What?
First, let’s talk about the so-called refinancing boom. This good news comes courtesy of the latest Mortgage Lenders Survey (MLSS) from Fannie Mae.
The GSE surveyed more than 200 senior mortgage executives and found that nearly three in five (58%) expect the refinancing boom to begin in 2025.
Some believe this could start later this year, although that would require a significant move down in mortgage rates in a hurry.
However, many now expect the Fed to cut interest rates in September as inflation continues to slow.
This expectation could lead to lower mortgage rates as bond yields fall, and thus the yield on the 30-year fixed bond falls.
Assuming all of this happens according to plan, we could see a significant spike in mortgage refinancing applications.
After all, about four million mortgages issued since 2022 had interest rates above 6.5%, and about half of them (1.9 million) had interest rates above 7%.
If the 30-year fixed rate drops to around 6%, or even lower, many new home buyers will seek to refinance the rate and term to save some money.
Loan servicer retention rates have increased significantly in recent times.
Now let’s talk about something called “servicer retention.” In short, once your home loan is funded, it is typically sold to an investor on the secondary market, such as Fannie Mae or Freddie Mac.
In addition to selling the loan there are servicing rights, which can be retained or waived.
If they were DetainedThe original lender collects the monthly payments and remains in contact with the customer for the life of the loan (unless the service is transferred at a later date).
If the service rights releasedThe payment collection process is handed over to a third party loan servicer.
Recently, banks and lenders have chosen to continue providing services in-house to take advantage of any potential future transaction.
This allows them to maintain an open line of communication with the homeowner, and offer them new products, such as a refinance or home equity loan, cross-sell, and more.
At the same time, they also make money through service fee income, which can supplement profits when new loans are difficult to obtain (as has happened recently).
However, what many mortgage companies realize is that by retaining service, they can extract refinancing opportunities from their book of business.
So instead of calling a random lender when the idea comes to mind, they may call you first.
Would you continue shopping if they contacted you first?
While it may seem nice to have a built-in reminder to refinance when rates drop, it may also deter you from shopping around.
Latest Mortgage Monitor Report from ice The study found that retention rates for recent loans have increased significantly, as shown in the chart above.
Loan servicers retained a staggering 41% of borrowers who refinanced their loans due in 2022 and 47% of those who refinanced their loans due in 2023.
In other words, they’re capturing nearly half of the refinancing business on loans they funded just a year or two ago.
The retention rate among FHA and VA loan refinances tripled from about 15% in Q4 2023 to 46% in Q1 2024.
This means you’re more likely than ever to hear refinance offers from the bank that currently services your mortgage.
This is great for mortgage companies, as they can make money from loan origination fees, lender fees, and possibly selling the loan and/or servicing rights back.
But it may not be great for you if you go with the first quote you hear. In this regard, ICE also noted that 36% of borrowers “considered” only one lender before making a decision.
And 48% considered only two. Have they thought about that? It is considered Do you want to talk to two people or actually talk to two people? Remember, shopping around has been shown to save borrowers money. Actual Freddie Mac studies prove it.
So if you just say, “Sure, let’s work together again,” you’ll likely miss out on much better offers in the process, even if it’s a good fit.
Personally, I would rather get a lower mortgage rate than save a little bit of time.
Prior to creating this site, I worked as an account manager for a wholesale mortgage lender in Los Angeles. My experience working in the early 2000s inspired me to start writing about mortgages 18 years ago to help potential (and current) home buyers better navigate the home loan process.
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