“When?” That’s the question everyone has been asking for three years. When will interest rates hit a level to restart refinances and begin to unfreeze the purchase market? Recently, we sat down with Jimmy Walby, EVP-Operations at NTC, to find out what NTC is doing to be ready…when “when” arrives.
Q: Jimmy, can you talk about where the market is today and where it could be heading?
A: For the past 3 ½ years, interest rates have been stubbornly above the 6% -7% levels, and this, in turn, has significantly reduced origination activity and lien release volume. The low point was 2023; 2024 was little better, up maybe 8% year over year. After the Fed cut interest rates in September, we saw a 20% jump in our volume. This activity tracks with what the Mortgage Bankers Association (MBA) and ICE Mortgage Technology have been reporting. In the first three weeks of September, refinance activity jumped 80% for the same period, according to the MBA.
ICE is estimating that 1 million homeowners, many of whom bought at the top of the market and at higher rates in 2023 and 2024, could be in the money now. By their calculation, on average, rates are down by .75% and this translates into a monthly savings of $399.
If rates fall to 6% or lower, nearly 6 million homeowners could refinance and get these savings.
At NTC, we’re already taking steps to be ready. We’re monitoring the market closely and gradually adding to staff–and have been since the beginning of the third quarter of this year.
Q: Aren’t you afraid to be ahead of the curve?
A: Just the opposite: We don’t want to be behind it and playing catch up. Our clients, many of whom are some the biggest lenders in the country, handle a significant percentage of refinance volume. They expect us to be ready to perform compliantly in all market cycles.
We’re hiring presumptively because it takes time to train our associates on our systems and procedures as well as the nuances of county compliance. We maintain a best-in-class .5% rejection rate, so it’s important that trainees hone their skills and can keep up with our level of quality – thorough preparation and training is the key.
Also, when it’s clear that volumes are picking up, everyone is suddenly recruiting again, so there is more competition for the same talent pool. We want to be there first.
Q: What are some of the nuances of County compliance?
A: Compliance is at the heart our business. Our clients hire us to make sure that lien releases are prepared and filed compliantly at the more than 3,700 counties in the U.S.
The bulk of these counties require liens to be filed within 30 days after a closing, but some give you 60 or 90 days and a handful only 10 or 14 days.
Some states, like New York and Geogia, have stiff penalties. In New York, if you’re 30 days late on the release, there is a $500 penalty and that is increased by $500 per month for every month you are late up to $1,500.
When you’re talking hundreds of thousands of releases nationwide, penalties can add up. Beyond concern for the liability issue, we know that our work impacts our clients’ relationships with their borrowers and possibly even their reputations. So, getting it right, and on time, is our mantra.
Also, it’s hard to catch up once a refinance wave starts, as our industry saw during the refi boom in 2020. You add staff, and it takes 60 days for the new hires to be effective. Volumes could be 20% higher or more by then; and if rates keep falling, you have more buyers coming into the market, as well. At the peak of the last refi wave, for example, we were handling hundreds of thousands of releases per month.
Q: So, is another wave coming and how far would rates have to fall to that happen?
A: Those are questions better suited for an economist to answer, and I’m not one. However, Fannie Mae recently, surveyed more than 100 housing economists and asked them what the magic interest rate level would be that would unfreeze the housing market. There was no consensus, but the number that came up most often was 5.5%. At that point, you’d have millions who could refinance. In addition, affordability would improve, bringing in buyers who have been on the sideline and encouraging owners with golden interest-rate handcuffs to put their properties on the market.
A couple of other things to keep in mind: Interest rates and homeownership costs are in the headlines every day, so consumers might be ready to act if rates continue to drop. Also, lenders and servicers have become more sophisticated when it comes to retention and digital marketing. So, when consumers are watching Netflix on their phones and a notification pops up asking them if they want to save $400 per month, they might just be ready to push that button.