Boom in Refinancing Boosts Mortgage Lending

Lenders made $565 billion of mortgage loans in the second quarter, the most in more than two years, as falling rates encouraged homeowners to refinance.

At that pace, originations could exceed $2 trillion for only the third year since the financial crisis, according to the industry research group Inside Mortgage Finance.

The rebound provided a boost to big banks including JPMorgan Chase & Co., Wells Fargo & Co. and

Citigroup
Inc.,


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which all reported higher mortgage originations.

It was also a lift for smaller independent lenders that have expanded their market share in recent years by shifting toward refinancing. They had struggled last year as rates rose, crimping the refinancing market.

“They are getting at least one bottle of Champagne out, if not the whole case,” said Guy Cecala, chief executive at Inside Mortgage Finance.

Refinancing accounted for roughly half of new mortgages, the highest share in years, according to Mr. Cecala’s estimates. Refinance applications rose 43% in the second quarter from a year earlier, while purchase applications climbed 6.2% during that period, according to the Mortgage Bankers Association.

Average mortgage rates dipped below 4% in the second quarter, and homeowners who had bought last year when rates were closer to 5% traded in old mortgages for new ones with lower rates.

John Hastings, a loan officer at Movement Mortgage in Minneapolis, said he saw interest in particular among those looking to refinance Federal Housing Administration mortgages, which typically go to first-time homeowners. Some wanted to get lower rates, while others wanted to get out of the insurance that is required on those loans. He also saw more purchase business.

“Volume overall is definitely up from last year, that’s for sure,” Mr. Hastings said.

The broad housing market is still showing signs of cooling as high home values price many out of the market. But the window of lower rates did provide an opening for some who had been wanting to buy.

Laura Poole, a database developer at an information technology company, began looking for a home earlier this year, reasoning that she wanted to benefit from rising housing values in the Dallas-Fort Worth area, where she lives. She closed on a three-bedroom, two-bathroom brick house in suburban Saginaw, Texas, in May.

Ms. Poole ended up with a rate of 4% on a 30-year fixed mortgage from Better.com, an online mortgage startup. Lower rates helped her have confidence that she would be able to stay within her budget, she said.

“I was so scared of being in a situation where I took on this house and then right away was having money worries,” Ms. Poole said. “So for me my biggest focus when purchasing a house was the projected monthly payment.”

Vishal Garg, founder and chief executive at Better.com, said the company made about $1 billion worth of loans in the second quarter, more than in all of 2016 and 2017 combined.

Fannie Mae and Freddie Mac back about half of new mortgages in the U.S. Now, talks are heating up about reshaping or shrinking the two companies, a move that could impact millions of Americans. Photo: Heather Seidel/The Wall Street Journal

Write to Ben Eisen at ben.eisen@wsj.com

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