Black Knight Originations Market Monitor: Credit Scores Fall, Increased Demand for ARMs, Affordability Challenges Continue as Interest Rates Top 7% in October

- Optimal Blue Mortgage Market Indices from Black Knight tracked 30-year rates as they rose 34 basis points (BPS) overall throughout the month to finish October at 7.06%, the highest level in more than 20 years

- The impact of elevated rates has been clear on overall lock volumes, which dropped more than 14% in October, and are now down 30% over the past three months and 61% off last year's level

- October's decline was led by yet another steep drop (-25.1%) in cash-out locks and further deterioration (-15.7%) in the rate/term market – ultimately, refis made up just 14% of the month's lock activity

- Interest rates and affordability challenges continue to put downward pressure on purchase lending as well, with the dollar volume of such locks 13% off the prior month and down 39% from October 2021

- Purchase lock counts – which exclude the impact of rising home prices – were down 37% year over year and 26% compared to pre-pandemic levels in 2019

- Credit scores fell across the board with cash-out borrower average scores falling another 3 points; the average credit score on cash-out refinances is now at 690, 37 BPS lower than the same time last year

- Adjustable-rate mortgages (ARMs) are gaining in popularity as affordability pressures rise, rising to account for 13.1% of October lock activity, up from 11.3% in September

- After seeing a brief uptick In September, both the average purchase price and average loan amount fell in October to $423,000 and $337,000, respectively

JACKSONVILLE, Fla., Nov. 14, 2022 /PRNewswire/ -- Today, Black Knight, Inc. (NYSE:BKI) announced the release of its latest Originations Market Monitor report, looking at mortgage origination data through October month-end. Leveraging daily rate lock data from Black Knight's Optimal Blue PPE – mortgage lending's most widely used pricing engine – the Originations Market Monitor provides the industry's earliest and most comprehensive view of origination activity.

"With interest rates now at their highest level in 20 years, the refi market is rapidly approaching a bottom," said Scott Happ, president of Optimal Blue, a division of Black Knight. "Indeed, our most recent Mortgage Monitor report showed that the number of borrowers with rate incentive to refinance has hit an all-time low of around 130K, and the vast majority of those are at least 14 years into a 30-year mortgage, with little incentive to restart the clock."

The month's pipeline data showed overall rate lock dollar volume down 14.3% month over month and at the lowest level since February 2019. The decline was broad-based but driven by a 25.1% decline in cash-out refinance locks. With tappable equity near all-time highs earlier in the year, cash-outs had shown some early resilience even as rates began to rise. They're now down 83.6% from October 2021. Rate/term refinance activity fell an additional 15.7% after holding steady in September and is down 92.6% year over year. All in all, refinance locks made up just 14% of the month's activity.

Purchase lending faced continued downward pressure from affordability constraints, with rising rates offsetting recent pullbacks in home prices. By dollar volume, such locks were down 13% from September and 39% from October 2021. When looking specifically at the number of purchase locks to exclude the impact of record home price growth over the last several years, we see it was down 37% year over year and 26% compared to pre-pandemic levels in 2019.

"Affordability remains the overarching concern in the mortgage origination market right now," Happ continued. "Despite home prices continuing to pull back in a growing number of markets across the country, the current rate environment means affordability remains a thorny challenge. It's therefore not very surprising to see a resurgence of somewhat lower-rate loan products like ARMs. Affordability, rates and home values all factor into falling purchase prices and loan sizes and all are generating headwinds over and above the normal seasonal downturn."

Each month's Originations Market Monitor provides high-level origination metrics for the U.S. and the top 20 metropolitan statistical areas by share of total origination volume. Much more detail on October's origination activity can be found in the full Black Knight Originations Market Monitor report.

Black Knight, Inc. (NYSE:BKI) is an award-winning software, data and analytics company that drives innovation in the mortgage lending and servicing and real estate industries, as well as the capital and secondary markets. Businesses leverage our robust, integrated solutions across the entire homeownership life cycle to help retain existing customers, gain new customers, mitigate risk and operate more effectively.

Our clients rely on our proven, comprehensive, scalable products and our unwavering commitment to delivering superior client support to achieve their strategic goals and better serving their customers. For more information on Black Knight, please visit www.blackknightinc.com/.

SOURCE Black Knight, Inc.