Falling Refi Rates Are Driving Demand and Elevated Application Pull-Through

As mortgage interest rates continue their welcomed descent, refinance applications have surged – up 83% month over month in August alone, according to Curinos’ LendersBenchmark Application Index. To be sure, heightened application interest doesn’t always translate to locks (and subsequent fundings), but there is an inverse relationship between rate direction and app-to-lock pull-through. Said another way, as rates drop, pull-through generally ticks upward – but only to a point.

Since June, even as interest rates have continued downward, pull-through appears to have leveled off, at around 50%. This indicates that a borrower’s propensity to see an application through to lock doesn’t continue in a linear manner but tends to cap – in this case at one of every two applications (see chart).

With this in mind, lenders either need to make sure their forecasts take this cap into account, or they need to engage the remaining 50% of borrowers proactively to try to capture the volume that wouldn’t otherwise materialize. This can take the shape of further journey personalization or addressing the root of the differential. Either way, should rates continue to fall, lenders can expect continued elevated application levels, at least for now, along with a relatively high, if flattening, level of applications to locks.