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A drop in mortgage interest rates last month following the Brexit vote has borrowers rushing back to the bank, some hoping to cash in on their monthly mortgage payments and some hoping to cash out new-found home equity.
Whichever the case, lenders are trying, and in some cases failing, to keep up with the volume.
The decrease in interest rates after the late June Brexit vote meant 1.3 million more borrowers could benefit from a mortgage refinance, bringing the total to 8.7 million, according to a new report from Black Knight Financial Services. That is the highest number since 2012.
These newly eligible borrowers have rates currently at or above 4.25 percent. The drop in rates after the vote by the British to leave the European Union was barely 15 basis points on the 30-year fixed mortgage.
"Unlike the 66 percent of borrowers Black Knight identified a few months ago, who could have both likely qualified for and had incentive to refinance in the spring of 2015, but for whatever reason didn't do so, the vast majority of these new candidates did not have such incentive last year," said Ben Graboske, Black Knight data & analytics executive vice president.
"This has produced a nearly 50 percent increase in the number of borrowers with new-found incentive to refinance, which may well be creating a more pronounced impact on refinance applications and originations as these borrowers rush to take advantage."
Mortgage applications to refinance have jumped over 100 percent in the past few weeks compared to a year ago, according to the Mortgage Bankers Association. They remain elevated now, as rates have not moved much off their recent lows. The disappointing GDP number last week kept downward pressure on interest rates, meaning there may be yet another surge in refinances.
"We're working very hard to manage turn times and make a good customer experience, but it's hard now," admitted Bryan Sullivan, chief financial officer of loanDepot, one of the largest nonbank lenders.
High volume is actually the reason mortgage rates are not even lower. Lenders say they need to do something to keep up with the volume, and keeping rates slightly higher is the best method.
"The only thing we and all other mortgage companies can control is the margins. If you drop to an absolute low, you're going to have a flood of volume and your manufacturing is going to get backed up. We can slow that a little bit and as capacity constraints ease, you may see rates go even lower," said Sullivan.
Other lenders are reporting similar capacity issues, and some are hiring new workers to keep up. LoanDepot currently has 5,200 employees and continues to hire but Sullivan says the company has to be careful to make sure the current volume is sustainable. It has also benefited from increased market share, as some of the larger bank lenders move away from certain types of mortgage lending.
While mortgage applications to refinance are high, purchase application volume is not getting quite the same boost from lower rates; higher home prices are offsetting the savings. Refinances could be even higher, but just because some borrowers are now eligible and could benefit, not all, by far are choosing to do so. Some just don't know, while others don't want to go through the hassle.
"It's still a contact sport, even if you're a serial refinancer, and people get nervous about doing that," said Sullivan.