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Refi activity soars as mortgage rates dip lower

Mortgagerates have fallen recently due to Brexitand other factors, and U.S. credit unions have taken advantage of it by puttingsignificantly more mortgage refinance loans on their books.

Thenational average for 30-year fixed mortgage rates at credit unions stood at3.63% July 15, an S&P Global Market Intelligence study found. At July 1,the rate was 3.70% and a month ago it was 3.75%. These rates represent thosereported by credit unions that may or may not use discount points in their ratereporting.

Therefinance share ofmortgage activity increased to 64.2% of the total application volume from 64%in the previous week, the Mortgage Bankers Association reported July 20.Overall, mortgage applications were down 1.3% week over week on a seasonallyadjusted basis for the week ended July 15.

JasonSasena, senior vice president of residential mortgage lending for ManhattanBeach, Calif.-based KinectaFederal Credit Union, said in an interview that fromMay to June, refi applications increased almost 40%, while purchaseapplications remained relatively flat. Month-to-date, refi applications are 70%of total applications, which is the highest since January 2015 when refis madeup 73% of the total, he said.

From May to June, refi "locks" — the point wheninterest rates are locked in — increased by more than 50% and continue to be alarge part of total locks into July. Refis currently account for 82% of July'slocks at Kinecta FCU, Sasena said.

Although the low interest rates are obviously a huge factorin the refinance activity, Sasena said it is not the only one. A few years ago,low interest rates persisted but there was not the accompanying spike in homevalues that exists today. "Now, people have the equity in their homes inaddition to the low-rate environment, which allows people to take advantage ofrefinancing for better terms," he said. Kinecta FCU's members seem to beprimarily refinancing to save on the monthly payments rather than to take cashout of their homes. "People are being more disciplined now with their homemortgages," he said.

Richmond,Va.-based Virginia Credit UnionInc. President and CEO Christopher Shockley predicted after theBrexit vote in Junethat there may be a short-term lift in mortgage refinance activity. Shockleysaid there is a "tremendous pocket" of consumers looking to refinancetheir homes, and to whatever extent Brexit causes rates to drop even further,that number should only increase. "We have been inundated with refinanceinterest," he said.

Acouple of Texas-based credit unions have seen contrasting results recently onthe refi front. A spokesperson for Randolph-Brooks Federal Credit Union said in an emailthe Live Oak, Texas-based credit union has seen an increase in mortgagerefinance applications during the past several months with a majority of theinflow occurring in July. Refinance applications at Randolph-Brooks FCU are up33% compared to earlier this year.

Onthe flipside, Austin, Texas-based Amplify Federal Credit Union President and CEO PaulTrylko said in an interview it has been business as usual in terms of refis."At this point, the drop in rates hasn't really changed our volume or refipercentage much in the aftermath of the Brexit vote," he said.

Sasena said Kinecta FCU wants to be careful not to rely tooheavily on the refinance business because when interest rates do eventuallyrise, it could be problematic. "You don't want to be relying on marketconditions for your business model," he said.

In terms of competition in the refi space, Sasena said it isintense in Southern California with a glut of mortgage bankers, credit unionsand large banks dotting the landscape. The region is one of the largest realestate metropolitan statistical areas in the country, which draws in manyplayers, he said.

AlanMacEachin, corporate economist for Virginia-based , saidin the wake of the June 23 Brexitvote that the macroeconomic impact could include downward movementin U.S. interest rates, especially shorter-term rates as the U.S. FederalReserve is now unlikely to raise rates again until next year. Mortgage ratesare likely to soon fall close to the all-time lows that prevailed back in late2012, he said.

Kinecta FCU's Sasena said interest rates should remain lowfor a while, but the pool of those consumers who can take advantage of it willshrink simply because so many have already done so. He said global events —such as Brexit — are having a big impact on the refi market but he expectsthings to stabilize for the rest of 2016. "It's hard to imagine rates goinglower, but I've said that before, so I could be wrong," he said.